Everyone seems to have a view about the so-called “Sharing Economy.” At our June 2015 workshop, panelists spoke for seven hours. (The video and transcript are available on the FTC website). And when we posed various questions for public comment, the response was an avalanche of over 2000 comments.
We listened, we read, we considered, and now we are ready to do some sharing of our own. Today the Commission released a Staff Report covering many of the topics raised and discussed during the workshop and in the public comments. Here are a few highlights:
Context: What is the sharing economy? And what is a sharing economy platform? As we noted in a previous blog post, sharing economy platforms are matchmakers – they use technology to establish online marketplaces that allow buyers and sellers to transact with each other. Although some platforms are big companies, in the sharing economy, sellers using the platform generally are small firms or individuals.
Establishing Online Marketplaces: How do sharing economy platforms manage to attract buyers and sellers? Largely they capitalize on the widespread adoption of internet and smartphone technology. These devices access software designed to enable buyers to search for potential transactions option and make a deal, often in real time.
Consumer Benefits: How do consumers benefit? Some sharing economy platforms have brought about “disruptive competition,” transforming existing markets. This is because many platforms enable suppliers to use assets they already own – such as their personal automobiles or a room in their homes – which can greatly decrease the cost of entering the marketplace compared to traditional methods. This new type of competition has the potential to reduce prices for consumers and increase the quality and variety of products in the marketplace.
Establishing Trust: Participants typically know little or nothing about each other in advance – why are so many transactions taking place? Many platforms use reputation rating systems. These systems enable users to see others’ reputation scores before deciding to engage. Although not perfect, in general platforms tend to have the incentive to maintain and improve rating systems to ensure users have good experiences.
Platform Size and Network Effects: Why are some platforms so large? Platforms face a “chicken-and-egg” problem – they need a substantial number of buyers to attract sellers and, at the same time, a substantial number of sellers to attract buyers. Economists refer to such situations as two-sided network effects, and explain that it can frequently lead participants to gravitate toward one platform. However, participants may find that their preferences are better met by smaller, specialized platforms and may be able to participate on several platforms simultaneously (called “multi-homing”).
Challenges for Regulators: Should sharing economy suppliers and platforms face regulation? Panelists and commentators hotly debated this topic.
- Some argued that regulations should be the same for all suppliers competing in a particular sector, for example, that the same regulations apply to Uber drivers and taxicabs, hotels and Airbnb hosts, creating a “level playing field” and protecting consumers and the public.
- Others emphasized the need to keep barriers to entry low so that consumers can reap the benefits of new entry by sharing economy suppliers. They suggested that regulators should adopt regulations that are no broader than necessary to achieve a legitimate public policy purpose, with an eye toward how any regulations affect competition from new entrants. Moreover, regulators should examine whether regulations designed to protect consumers participating in the traditional economy ought to be applied to entities operating in the sharing economy.
As existing “matchmaker” platforms evolve and new ones emerge, we expect that the workshop record and this Report will provide an important foundation for thinking about the competition and consumer protection implications of regulatory policy in the sharing economy. We encourage everyone – on all sides of the debate – to continue sharing their views.