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.

  1. Sharing Economy

    The sharing economy is a peer-to-peer activity of acquiring, ...
  2. Rent Control

    Rent control is a price control that limits the amount a property ...
  3. IRS Publication 527 - Residential ...

    An Internal Revenue Service (IRS) document providing tax information ...
  4. Collaborative Commerce - C-commerce

    Collaborative commerce optimizes supply and distribution channels ...
  5. One Percent Rule

    The one percent rule is a rule of thumb used to determine if ...
  6. Home (legal definition)

    A home is a person's permanent primary residence to which they ...
Related Articles
  1. Insights

    Who Wins -- And Who Loses -- When Social Tech Disrupts Your Industry

    Social media and emerging technologies are reshaping industries and the economy in potentially disruptive ways. Who will win and who will lose in the sharing economy?
  2. Insights

    Disrupting the Disruptors: Technology vs. the Law

    Tech companies that are leaders in the sharing economy, like Airbnb and Uber, face legal issues.
  3. Small Business

    Top Cities Where Airbnb Is Legal Or Illegal

    Thinking of subletting your apartment on Airbnb? Make sure that you meet your city's regulations first.
  4. Investing

    10 Cities Where Rent Is Rising Fastest

    Rents are rising in 34 of the 35 largest U.S. metros, but salaries are not keeping pace. Here's where you're most likely to feel the pinch.
  5. Investing

    The Complete Guide to Real Estate Renting

    Everything you need to know about renting property.
  6. Taxes

    Tax Rules For Renting Out Your Vacation Home

    Here's a rundown of the specific tax rules that apply to homeowners renting out a vacation property.
  7. Investing

    The True Costs of Buying Vs. Renting a Home

    The full costs of renting versus buying a home, particularly a high-end one, may come as a surprise.
  8. Insights

    What's the Economy?

    The economy is the production and consumption activities that determine how scarce resources are allocated in an area.
  9. Investing

    Pros and Cons of Renting vs. Owning a Home

    Owning a house might be an appealing idea, but it may have a lasting impact on your lifestyle. Learn more about other implications of rent vs. buying a home.
  1. What impact does disposable income have on the stock market?

    Learn what disposable income is and what it means for average consumers. Understand the impact that disposable income has ... Read Answer >>
Trading Center