DEFINITION of 'Collaborative Consumption'

Collaborative consumption is 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. The cost is divided across a larger group as the purchase price is recouped through renting or exchanging.

BREAKING DOWN 'Collaborative Consumption'

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

Collaborative consumption is considered part of the sharing economy because it means that individuals rent 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 one person. By renting out an asset when it is not being used, its owner turns the asset into a sort of commodity. This creates a scenario where physical objects are treated as services.

How Collaborative Consumption Raises Regulatory Concerns

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 in order to legally operate. Those fees make their services more expensive than those provided by individuals who do not pay such fees.

For example, Airbnb created an online platform that lets owners of homes, apartments and other dwellings lease or rent out their space to others. This might be done for residences that the owner only occupies part-time or during periods they intend to be away for an extended time. Individual renters might not be able to afford such a residence themselves, but by dividing the costs across multiple renters who occupy the space at separate times, the residence becomes affordable.

Traditional hotels have challenged the legality of Airbnb rentals because those owners typically do not have to adhere to regulatory requirements or pay the associated operating costs. This outcry led to efforts to regulate or crackdown on such rental operations.

Comparable legal challenges arose around ride-sharing services such as Uber and Lyft. The operators of taxi companies and limousine services contended that use of ride-sharing services was an illegal form of competition. The operations of Uber, for example, were blocked or limited in certain cities where local authorities sought to require the service to adhere to the same regulations that taxi and limousine services abide by.

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