How the Sharing Economy is Different

Companies like Uber and Airbnb have a lot in common. They are both startups that were started with relatively fewer resources. Both these companies started around the same time. Uber started in 2008 whereas Airbnb started in 2009. Today, both these corporations are worth billions of dollars. However, the similarities do not end there.

The biggest similarity that these companies have is that they are both the part of what is now called “the sharing economy”. The sharing economy has been somewhat of an economic revolution. Today, there are several multi-billion dollar corporations that propagate the sharing economy. In fact, traditional companies like Ford and General Electric are also trying to inculcate the sharing model in their business operations.

In this article, we will have a closer look at what the sharing economy is and how it is different from the traditional economy.

What is the Sharing Economy?

The sharing economy is a model which is based on the personal ownership of capital resources. For instance, companies like Hertz and Avis own all the cars that they rent out. On the other hand, User does not own any cars. The drivers own the cars driven by them. Hence, in companies like Hertz and Avis, there is centralized ownership of assets. On the other hand, in a sharing economy, there is decentralized ownership of assets.

No Distinction between Production and Consumption Goods:

The whole idea behind the sharing economy is that the distinction between production and consumption of goods is unnecessary and should be removed. For instance, in a sharing economy, a car which is used for personal purposes can also be used for providing services to others. The basic premise is to use capital goods in such a manner that maximum value can be derived from them. The sharing economy allows people to earn money from their assets when they are not using them. For instance, Airbnb lets people rent out the rooms in their houses when they are not being used.

On the other hand, Uber allows people to rent out their cars. Several other companies allow the sharing of everything from broadband internet to sports goods. The idea is to convert spare household items into capital that can be shared with others.

No Regulation

At the present moment, the sharing economy is not subject to a lot of regulation. This is important because the providers of capital in the sharing economy are small individuals. Big corporations have the time, money and the systems required to comply with regulation. Small businesses, on the other hand, cannot comply with regulations. However, the absence of regulation is also what is making this business lucrative. For instance, cab drivers have to procure licenses from the state in which they operate. These licenses are restricted to ensure that the cab drivers get enough profitable business. However, Uber drivers do not need any licenses. Hence they increase the supply of cabs in the market. This brings the price down for everybody. Lack of regulation is a controversial subject. Some people argue that the lack of regulation is a good thing whereas others argue against it.

Information is Widely Available?

The sharing economy is based on the concept of freely available information. For instance:

  • Both cab drivers and passengers can give each other ratings. These real-time ratings enable companies to screen out anti-social elements.
  • The reputation of a co-passenger can be checked in real time. Hence, sharing a car with a stranger is no longer a terrifying thought.
  • Information regarding the location of the pickup and drop, the best route to take and the expected time of arrival is also available on a real-time basis. This makes it possible for the passengers to complete their journey with fewer costs and hassles
  • Information regarding the availability of assets, like cabs, hotel rooms, etc. is also updated and shared in real time.

Operating a business based on the sharing economy is impossible in the absence of such information. This is the reason why sharing economy companies are basically technology companies even though the end products they sell may be cabs or accommodation services.

Flexi Work Schedules

The sharing economy does not believe in the concept of an employee. Instead, sharing economy companies have created employee contractors. This means that they are the owner of their own assets. Also, they decide when they want to work. They can have flexible schedules and can take time off whenever they want. This flexible schedule is a boon for many people. For instance, some housewives or students can work only at certain hours. It is the sharing economy that gives them the flexibility to do so.

The only problem with the sharing economy is that it does not let workers set their own wage. For instance, Uber decides what price their drivers will take from the customers. This decision should also be decentralized. This will help companies avoid allegations that sharing economy is inherently exploitative in nature and exerts downward pressure on the wages.

At the present moment, the concept of sharing economy is relatively nascent. As the concept matures with the passage of time, it should be able to get rid of some more problems and inconveniences associated with it.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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