The Economics of the Sharing Economy January 2018 Professor Flavio Menezes http://ideas.repec.org/e/pme33.html http://www.uq.edu.au/economics/menezes-flavio
The term suggests that … • Some individuals own assets that are underutilised (a car, their home, a campervan, etc.) • Other individuals may want to use these assets • Businesses use internet and mobile technology to create marketplaces • However....the term is used more widely • Pawshake and PetCloud • Airtasker, Freelancer and Sidekicker • Etsy • Peer-to-peer lending (e.g., SocietyOne) • There also seems to be an implication that ‘sharing’ is a new concept
It covers a wide range of trading mechanisms • Some peer-to-peer platforms (lending, jobs, crafts) cannot be described as ‘sharing’ assets • Some are decentralised marketplaces (e.g., Airbnb) that match buyers and sellers • Others are more centralised in nature: Uber matches buyers with individual sellers (workers), but they internalise the matching process – when you order a ride, Uber ‘decides’ who will drive you • Two key common ingredients are • The focus on facilitating trading opportunities; ‘two-sided’ markets (Jean Tirole, 2014 Nobel Laureate) • The use of technology
Designing ‘market places’ to facilitate trade is not new • Ebay was established in 1995; there are a myriad of other similar trading platforms • Trading platforms also established prior to online trading • Stock exchanges, government bonds, … • The difference between Airbnb and the apartment rental section of a newspaper's classified ad or a travel magazine is the technology they use • Classified ads simply initiates a discovery process that could be costly and time consuming • An online platform instantly identifies many potential properties with prices, reviews, pictures, etc.
The choice of access over ownership is not new either • The micro reforms of 1990s mandated access to ‘natural monopoly’ infrastructure • Infrastructure that cannot be efficiently duplicated: airports, rail tracks, ports, electricity/gas distribution/transmission • Part IIIA of the Consumer and Competition Act governs access – negotiate/arbitrate model • The QCA Act governs access to monopoly infrastructure in QLD • Rental markets • Car leases and car rental, holiday homes, homes, home appliances, boats, … • News and music • One can access content without owning a physical copy of a newspaper or a CD • Again the novelty is the technology that allows efficient matching but also has other features that allow businesses to make money – usually the exception (see next)
The internet was bad news for the music industry … but it may be changing Reproduced from Credit Suisse, Global Investors 2.15, November 2015
The three key components Einav, Farronato, and Levin (2016), ‘Peer-to-Peer Markets’, ARE • Efficiency of the trading mechanism • Trust • It needs to attract participants, enough buyers and sellers to create a relatively thick market. • Will the currently model of relying on flexible part-time workers prove to survive in long-run? • The experience in e-commerce may be important
Some key unresolved issues • What is the right level of regulation (prices, entry, quality, safety,…) • Platforms use independent contractors and do not provide health or disability insurance, or ensure that workers earn a minimum wage • Also enjoy an advantage by avoiding local restrictions on entry or licencing requirements • Trade-off: consumer protection versus incumbent protection from competition • Will platform businesses perform in a way to sustain current valuations? • Uber: > $US 60 b, Airbnb, some analysis claim an IPO could raise > $50 b • What are the most promising markets? • Energy, lending, city-to-city transport, durable goods, logistics, mobility, food,… • The data: who owns, who can access, privacy, cyber security, … • The regulator of the future: a rule maker?
Car and home sharing is the tip of the iceberg • Sharing infrastructure in general (universities, R&D labs, peer to peer electricity trading from solar pv, driverless cars, fintech, …) • Two examples of technology driven sharing of assets and implications for regulation • DERs • Driverless cars
Example 1: Distributed Energy Resources DER: demand response, distributed generation, distributed storage and end-use energy efficiency
Example 2: Driverless cars Significant infrastructure build-out: side lanes on highways • fully networked intersections and traffic • monitoring capability fully mapped roads with real-time updates • network capability to handle the data needs • of several hundred million autonomous Reproduced from vehicles on the roads, etc. Morgan Stanley’s Blue Paper: Autonomous Cars; Self-Driving the New Auto Industry Paradigm, 2013.
Some immediate implications for regulation • Creation of new markets • E.g., for short trips, in areas with high population density or for behind the meter services • Recovery of large, sunk capital costs will become harder • Roads, electricity transmission and distribution infrastructure • Uniform (volumetric) prices/charges become more problematic • Access to data and cyber security become more crucial • Move from a centralised synchronous electricity sector to a partially decentralised system • New technology allows a vehicle to communicate with other vehicles (V2V), roadside infrastructure (V2I), and other devices such as mobile phones (V2P) • Complex interface with safety, environmental, legal, and privacy issues • Regulator’s role as ‘rule maker’
More implications • Technology neutral regulation or government intervention • E.g., Heavy vehicles taxed (registration fees + fuel taxes) to level playing field • Let the ‘market’ decide how best to reduce emissions • Move to smarter pricing to account for social (e.g., congestion, emissions) and private (fixed and variable) operating costs • Develop a framework for managing and accessing data • Price regulation needs to provide incentives for quality and innovation while retaining incentives for cost reduction • Move to menu regulation
Traditional economic regulation will become less relevant Traditional realm of economic regulation (prices) Markets Regulation - Safety Technology - Environment Markets and - Social objectives technology taken as given
The future of regulation and the regulator of the future Regulatory Participants Objectives + = Framework users, operators and efficient use of and market mechanisms, regulatory institutions infrastructure owners, data investment in infrastructure and rules, funding arrangements aggregators • The Regulator's task is to design regulation with incentives that align participants' decisions with some pre-specified socially desired goal • A market design approach: regulators can't take markets and technology as given - instead they will have a major role in setting up markets and need to be conscious that regulation may affect the technological adoption
Thank you
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