The Economics of the Sharing Economy January 2018 Professor Flavio - - PowerPoint PPT Presentation

The Economics of the Sharing Economy January 2018

Professor Flavio Menezes

http://ideas.repec.org/e/pme33.html http://www.uq.edu.au/economics/menezes-flavio

The term suggests that …

• Some individuals own assets that are underutilised (a car, their home, a

campervan, etc.)

• Other individuals may want to use these assets
• Businesses use internet and mobile technology to create marketplaces
• However....the term is used more widely
• Pawshake and PetCloud
• Airtasker, Freelancer and Sidekicker
• Etsy
• Peer-to-peer lending (e.g., SocietyOne)
• There also seems to be an implication that ‘sharing’ is a new concept

It covers a wide range of trading mechanisms

• Some peer-to-peer platforms (lending, jobs, crafts) cannot be described as

‘sharing’ assets

• Some are decentralised marketplaces (e.g., Airbnb) that match buyers and

sellers

• Others are more centralised in nature: Uber matches buyers with individual

sellers (workers), but they internalise the matching process – when you order a ride, Uber ‘decides’ who will drive you

• Two key common ingredients are
• The focus on facilitating trading opportunities; ‘two-sided’ markets (Jean Tirole, 2014

Nobel Laureate)

• The use of technology

Designing ‘market places’ to facilitate trade is not new

• Ebay was established in 1995; there are a myriad of other similar trading

platforms

• Trading platforms also established prior to online trading
• Stock exchanges, government bonds, …
• The difference between Airbnb and the apartment rental section of a

newspaper's classified ad or a travel magazine is the technology they use

• Classified ads simply initiates a discovery process that could be costly and time

consuming

• An online platform instantly identifies many potential properties with prices, reviews,

pictures, etc.

The choice of access over ownership is not new either

• The micro reforms of 1990s mandated access to ‘natural monopoly’ infrastructure
• Infrastructure that cannot be efficiently duplicated: airports, rail tracks, ports, electricity/gas

distribution/transmission

• Part IIIA of the Consumer and Competition Act governs access – negotiate/arbitrate model
• The QCA Act governs access to monopoly infrastructure in QLD
• Rental markets
• Car leases and car rental, holiday homes, homes, home appliances, boats, …
• News and music
• One can access content without owning a physical copy of a newspaper or a CD
• Again the novelty is the technology that allows efficient matching but also has other

features that allow businesses to make money – usually the exception (see next)

The internet was bad news for the music industry … but it may be changing

Reproduced from Credit Suisse, Global Investors 2.15, November 2015

The three key components

Einav, Farronato, and Levin (2016), ‘Peer-to-Peer Markets’, ARE

• Efficiency of the trading mechanism
• Trust
• It needs to attract participants, enough buyers and sellers to create a

relatively thick market.

• Will the currently model of relying on flexible part-time workers prove to

survive in long-run?

• The experience in e-commerce may be important

Some key unresolved issues

• What is the right level of regulation (prices, entry, quality, safety,…)
• Platforms use independent contractors and do not provide health or disability insurance,
• r ensure that workers earn a minimum wage
• Also enjoy an advantage by avoiding local restrictions on entry or licencing requirements
• Trade-off: consumer protection versus incumbent protection from competition
• Will platform businesses perform in a way to sustain current valuations?
• Uber: > $US 60 b, Airbnb, some analysis claim an IPO could raise > $50 b
• What are the most promising markets?
• Energy, lending, city-to-city transport, durable goods, logistics, mobility, food,…
• The data: who owns, who can access, privacy, cyber security, …
• The regulator of the future: a rule maker?

Car and home sharing is the tip of the iceberg

• Sharing infrastructure in general (universities, R&D labs, peer to peer

electricity trading from solar pv, driverless cars, fintech, …)

• Two examples of technology driven sharing of assets and implications

for regulation

• DERs
• Driverless cars

Example 1: Distributed Energy Resources

DER: demand response, distributed generation, distributed storage and end-use energy efficiency

Significant infrastructure build-out:

• side lanes on highways
• fully networked intersections and traffic

monitoring capability

• fully mapped roads with real-time updates
• network capability to handle the data needs
• f several hundred million autonomous

vehicles on the roads, etc. Reproduced from Morgan Stanley’s Blue Paper: Autonomous Cars; Self-Driving the New Auto Industry Paradigm, 2013.

Example 2: Driverless cars

Some immediate implications for regulation

• Creation of new markets
• E.g., for short trips, in areas with high population density or for behind the meter

services

• Recovery of large, sunk capital costs will become harder
• Roads, electricity transmission and distribution infrastructure
• Uniform (volumetric) prices/charges become more problematic
• Access to data and cyber security become more crucial
• Move from a centralised synchronous electricity sector to a partially decentralised

system

• New technology allows a vehicle to communicate with other vehicles (V2V), roadside

infrastructure (V2I), and other devices such as mobile phones (V2P)

• Complex interface with safety, environmental, legal, and privacy issues
• Regulator’s role as ‘rule maker’

More implications

• Technology neutral regulation or government intervention
• E.g., Heavy vehicles taxed (registration fees + fuel taxes) to level playing field
• Let the ‘market’ decide how best to reduce emissions
• Move to smarter pricing to account for social (e.g., congestion,

emissions) and private (fixed and variable) operating costs

• Develop a framework for managing and accessing data
• Price regulation needs to provide incentives for quality and

innovation while retaining incentives for cost reduction

• Move to menu regulation

Traditional economic regulation will become less relevant

Markets Technology Regulation

• Safety
• Environment
• Social objectives

Traditional realm of economic regulation (prices)

Markets and technology taken as given

The future of regulation and the regulator of the future

users, operators and infrastructure owners, data aggregators

• The Regulator's task is to design regulation with incentives that align participants'

decisions with some pre-specified socially desired goal

• A market design approach: regulators can't take markets and technology as given -

instead they will have a major role in setting up markets and need to be conscious that regulation may affect the technological adoption

efficient use of and investment in infrastructure market mechanisms, regulatory institutions and rules, funding arrangements

Participants Objectives Regulatory Framework

+ =

Thank you