On the sharing economy
Argentinean financial journalist Gabriela Origlia recently contacted me by email to discuss the so-called sharing economy for an article she has written for the inflight magazine of Colombian airline Avianca, called “Compartir en vez de tener” (“Sharing rather than owning”, see pdf here).
Below, the full Q&A:
Question. What are the factors driving the growth of the sharing economy?
Answer. The sharing economy is being driven by a sharp fall in coordination and communication costs, due to the popularity of the internet and smartphone applications. Until now, setting up the mechanisms to coordinate supply and demand was beyond the reach of most people, and the few attempts to do so were usually highly inefficient. Holiday accommodation and transport provide two examples of sectors with huge idle capacity, where potential suppliers of transport or accommodation were unable to offer their services because they lacked the means to reach their target audience. But the development of the internet and the use of smartphones has led some entrepreneurs to set up platforms using simple mechanisms that facilitate suppliers to meet market demand. If we add to this communication capacities within the reach of more and more businesses, then we begin to see the emergence of the sharing economy through companies such as Uber, Lyft, or Airbnb.
Q. What role do the social networks play in this?
A. The social networks play an indirect role in the sense that they encourage people to buy smartphones, which has contributed to the popularity of a platform that has been fundamental in developing the apps that support the sharing economy. At the same time, they are channels of communication: good ideas now circulate throughout society very quickly. Finally, some aspects of the sharing economy, such as collective evaluation (whereby consumers rate services online) have also originated in the social networks.
Q. Do you think the sharing economy will override the classic cost/benefit formula that still dominates economic relations? How do you see the sharing economy growing? What other sectors do you see opening up to it?
A. From an economics perspective, the sharing economy offers a more efficient use of the area below the supply and demand curve: thanks to the mechanisms mentioned above, there are new incentives for suppliers of certain services to meet the demands of certain clients. The sectors where the shared economy will make the biggest impact are those characterized by inefficiency: in the case of passenger traffic, it is clear that many restrictions that create artificial shortages are not benefitting users, but rather those who control the supply of licenses and permits. But the licensing system cannot, in the medium to long term, restrict idle capacity once society has been made aware of this new opportunity.
Q. How is the competition dealing with these changes?
A. So far, the competition has attempted to deal with the appearance of the sharing economy through a disinformation campaign. In the majority of cases, we are seeing newcomers to passenger transport and accommodation being discredited by the traditional operators, But these arguments are easily dismantled, the effect of which is to increase interest in the newcomers. Other tactics, such as strikes or legal action, also tend to generate negative reactions from consumers, creating the impression that the traditional suppliers are merely protecting their own interests, while the newcomers are trying to improve the efficiency of the markets in question.
(En español, aquí)
