DEFINITION of 'Collaborative Consumption'

The shared use of a good or service by a group. Collaborative consumption differs from standard commercial consumption in that the cost of purchasing the good or service is not borne by one individual, but instead is divided across a larger group as the purchase price is recouped through renting or exchanging.

BREAKING DOWN 'Collaborative Consumption'

Collaborative consumption is, at heart, a form of sharing. Bartering and peer-to-peer renting, for example, have been used by societies for thousands of years and are a way to provide a group of individuals with an asset without requiring each to purchase it on his or her own.

Collaborative consumption is considered part of the sharing economy because it means that individuals are renting out their underused assets. It is most likely to be used when both the price of a particular asset, such as a car, is high and the asset is not utilized at all times. By renting out an asset when it is not being used, its owner is turning the asset into a sort of commodity and creating a scenario in which physical objects are treated as services.

Critics of collaborative consumption argue that the informal nature of such arrangements allows individuals to bypass local regulations that businesses offering similar services must follow. These businesses may have to pay licensing or other regulatory-related fees, thereby making their services more expensive than those provided by individuals who do not pay such fees.

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