What is the Sharing Economy?

The sharing economy is an economic model defined as a peer-to-peer (P2P) based activity of acquiring, providing, or sharing access to goods and services that is often facilitated by a community-based on-line platform.

Key Takeaways

  • The sharing economy involves short-term peer-to-peer transactions to share use of idle assets and services or to facilitate collaboration.
  • The sharing economy often involves some type of online platform that connects buyers and seller.
  • The sharing economy is rapidly growing and evolving but faces significant challenges in the form of regulatory uncertainty and concerns about abuses.

Understanding the Sharing Economy

Communities of people have shared the use of assets for thousands of years, but the advent of the Internet—and its use of big data—has made it easier for asset owners and those seeking to use those assets to find each other. This sort of dynamic can also be referred to as the shareconomy, collaborative consumption, collaborative economy, or peer economy.

Sharing economies allow individuals and groups to make money from underused assets. In a sharing economy, idle assets such as parked cars and spare bedrooms can be rented out when not in use. In this way, physical assets are shared as services.

For examples, car sharing services like Zipcar can help illustrate this idea. According to data provided by the Brookings Institute, private vehicles go unused for 95% of their lifetime. The same report detailed the lodging sharing service Airbnb’s cost advantage over hotel space as homeowners make use of spare bedrooms. Airbnb rates were reported to be between 30-60% cheaper than hotel rates around the world.

The Sharing Economy is Evolving

The sharing economy has evolved over the past few years where it now serves as an all-encompassing term that refers to a host of on-line economic transactions that may even include business to business (B2B) interactions. Other platforms that have joined the sharing economy include:

  • Co-working Platforms: Companies that provide shared open work spaces for freelancers, entrepreneurs, and work-from-home employees in major metropolitan areas.
  • Peer-to-Peer Lending Platforms: Companies that allow for individuals to lend money to other individuals at rates cheaper than those offered through traditional credit lending entities.
  • Fashion Platforms: Sites that allow for individuals to sell or rent their clothes.
  • Freelancing Platforms: Sites that offer to match freelance workers across a wide spectrum ranging from traditional freelance work to services traditionally reserved to handymen.

Spurred primarily with the growth of Uber and Airbnb, it is expected that the sharing economy will grow from $14 billion in 2014 to a forecasted $335 billion by 2025.

Current Criticisms of the Sharing Economy

Criticism of the sharing economy often involves regulatory uncertainty. Businesses offering rental services are often regulated by federal, state or local authorities; unlicensed individuals offering rental services may not be following these regulations or paying the associated costs. This could mean giving them an advantage that enables them to charge lower prices.

Another concern is that lack of government oversight will lead to serious abuses of both buyers and sellers in the sharing economy. This has been highlighted by numerous highly publicized cases of things like hidden cameras in rented rooms, lawsuits over unfair treatment of ridesharing contractors by the platforms that employ them, and even murders of customers by real or fraudulent rental and rideshare providers.

There is also a fear that the greater amount of information shared on an online platform can create racial and/or gender bias among users. This can happen when users are allowed to choose who they will share their homes or vehicles with, or because of implicit statistical discrimination by algorithms that select users with characteristics such as poor credit history or criminal records.

For example, Airbnb had to face racial discrimination complaints from African-American and Latino would-be renters due to widespread user preference not to rent to these customers. As more data is presented and the sharing economy evolves, companies within this economy have pledged to combat bias in both their users and algorithms often by deliberately limiting the availability of information to and about buyers and sellers.