A new staff report from the Federal Trade Commission highlights the competitive benefits and the potential consumer protection issues presented by the burgeoning "sharing economy."
Based on a workshop hosted by the agency in June 2015 (as well as more than 2,000 comments), the report "provides an in-depth assessment of evolving business models that rely on Internet and app-based 'sharing economy' platforms used by millions of Americans," the FTC said. The report, titled "The 'Sharing' Economy: Issues Facing Platforms, Participants, and Regulators," discusses the "meteoric rise" of peer-to-peer platforms, which have altered the landscape of certain industries, particularly for-hire transportation and short-term lodging.
The report identified three characteristics of a successful platform marketplace: it has the ability to attract a large number of participants to both sides of the market (described by workshop participants as a "thick" market); the ability for potential transaction partners to search for one another, find a match, and complete a transaction (reducing the friction that would otherwise make transactions costly or cumbersome); and it has a way to make transactions between strangers safe and reliable enough that buyers and sellers feel confident that the deal will proceed as agreed.
Trust mechanisms are a key ingredient of the sharing economy, the FTC wrote. It analyzed how particular platforms employ trust mechanisms and work to promote buyer and seller satisfaction. While some have expressed concern that the platforms attract low-quality sellers with the possibility that they have no investment in establishing a business reputation, these potential problems have not stopped the economy from prospering.
Instead, platforms have developed tools to address these issues, most notably in the form of reputation ratings systems. Although the ratings "do not eliminate buyer or seller dissatisfaction, they work well enough to have facilitated the enormous growth of the sharing economy," the report recognized. Workshop participants shared ideas about ways of improving reputation ratings, such as reporting a user's percentile ranking alongside his or her aggregate score or weighing recent transactions more heavily than older ones.
The report also addressed the debate surrounding regulation of the sharing economy. "On the one hand, regulatory measures may be needed to protect consumers, promote public safety, and meet other legitimate governmental goals," the FTC said. "On the other hand, regulation can chill incentives for innovation by increasing costs and decreasing potential returns, thereby impeding or preventing new entry and depriving consumers of the benefits of new product and service offerings."
Workshop attendees offered a range of opinions on the issue, from requiring sharing economy participants to be subject to the same regulations as traditional products and services, to regulations tailored to the new platforms, to a completely hands-off approach. Concrete examples of the dilemma were discussed by considering the hugely successful platforms of Uber and Airbnb (valued at $62.5 billion and $25.5 billion, respectively).
To read the FTC's staff report, click here.
Why it matters: "It is important to allow competition and innovation to continue to flourish, while at the same time ensuring that consumers using these online and app-enabled platforms are adequately protected," FTC Chairwoman Edith Ramirez said in a statement about the report.