When sharing is not caring : Questions of Market Ethics and

Regulations in the rise of the sharing economy

INTRODUCTION
Challenging the traditional "buying against selling" economical model is the burgeoning
sharing economy that seems to be have included borrowing in our everyday trade. While offering
many incentives for the supplier such as schedule flexibility, lesser regulations and instant
compensation, it also reduces product prices and increases variety for the customer at the same
time. Given this "win-win" scenario for both ends of a deal, it's no surprise that Uber has a net
revenue of $6.5 billion( Carson 2017) while Airbnb operates in 191 countries and TaskRabbit has
raised $37.7 million in funds( Jeffries,2017).As all the success of these companies fall under the
spotlight of the government and its policymakers, issues of market regulations, ethics and
fairness naturally arise. Considering all these issues and stakeholders, the most ideal position
here would include three things- firstly, the mandatory introduction of a third-party regulatory
company such as TrustCloud to increase competition within the sharing economy. This should be
followed by the adoption of fixed price-surging algorithms by both industries and further
deregulation of legacy industries(e.g. taxi and hotel industries).

DO WE NEED TO REGULATE?
A good starting point here would be to understand how companies like Uber, Airbnb and
TaskRabbit are thriving in our market. Their exponential growth is based on the comparative
advantage of operating and distributing their services digitally as there is zero marginal cost and
capital constraints. They also reduce information gaps or asymmetry and consequently the risks
of consumers making adverse selections about their services. This is integral in maintaining
consumer trust and faith in these companies so that they do not hesitate to rent their property to
random people or to ride a strangers car. Moreover, they match demand with spare capacity( i.e.
goods and services available for short-term renting), maximising capital use in the society. In
terms of regulations, they function on a two-way rating where recurrent bad reviews make both
drivers and customers struggle for work and services,thus compelling them to be respectful and
fair.

However, neither the sharing economy nor its rating system is a revolutionary
phenomenon but an overall disruption of the status quo that largely owes to the accessibility and
flexibility of the digital platform .As far as the innovative approach goes, similar models have
been undertaken in the past, an appropriate example being the 'asset light' model by major hotel
companies including Marriott and Hilton and hospitals such as Ivy Hospitals. In such a modus
operandi, hotels strike up deals with investors to share percentages of profits made out of a
location instead of directly buying the land. As most hotels also have a digital app that keep track
of customer reviews, this scheme isn't fundamentally different from Airbnb's mode of operation,
except that it involves common people sharing their properties and earning instead of
investors(Yu 2017).However, in the guise of "tech-startups", these companies are bypassing all
restrictions that traditional companies have to face, leading to an unfair market. A obvious case
of this inequality is how Uber can offer lower fares because it doesnt have to bear the extra cost
of taxes on the fare or city-imposed safety and licensing standards. In the same way, Airbnb can
avoid costs related to fire safety and general inspections. Ubers other advantage is that its
blatant disregard of the citys fare structure. Taxi companies can only charge a set fare any time
of day,any day of the week. And those fares have gone up in recent years to improve living
conditions of the drivers. Uber further capitalizes on this unjust price system by practicing "surge
pricing" which means they raise prices when demand for rides is high. But perhaps, its most
controversial exploitation is how it might be selling its service lower than the production costs by
relying on its $15 billion venture capital. Some experts say that this predatory pricing is a
cornerstone of Ubers aggressive business model that intends to flood markets with cheap
supply while slowly driving target companies out of competition. This has already happened in
San Francisco.Yellow Cab Cooperative, which is made up of 300 owners and operators with
more than 500 cabs has filed for bankruptcy in 2015(Dickey 2016). Even though the legal basis
of predatory pricing is being fought in courts from San Francisco to India, there's no doubt that
Uber enjoys many undue privileges and the current regulatory framework requires immediate
modifications.

NEXT STEP: THE REGULATIONS

In principle, there are two possible courses of reforms- one that regulates Uber and other
sharing economies like every other company. And then there's deregulation of the old traditional
industries.The first solution is outdated as these strict regulations were primarily set in the 1930s
to control soaring taxi driver numbers due to entry low costs and high unemployment during the
Great Depression(Rubenstein,2014).The medallion system introduced in the United States and
other countries basically narrowed market entry to purchasing registered licenses from existing
operators which can cost about $1.32 million(Van Zuylen-Wood,2015). Regulating Uber is also
not consumer-friendly as there has been a decline in customer complaints per taxi trip(Wallsten
2015) and cheaper varieties for them. The heart of the problem is therefore these numerous
regulations set in the first place. This rationale is strongly attested by New Zealand's deregulation
in 1989 that led to shorter waiting times, a decline in fares and a greater choice of
services(Morrison,P.S.,1997).
 However, despite its many benefits, we must note that the government only removed the
quantitative cap on licenses while keeping the old fare structures. To fully adapt our economy to
such a radical shift, we must not only follow New Zealands example but also adopt Uber's price
surging algorithm in both economies. Although it's vociferously complained about by users,
consumers do enjoy reduced prices in low-demand scenarios and are also forewarned about
rising prices in high-demand ones. Moreover, it ensures market clearing by motivating drivers to
keep up with the high demand with more earnings whilst allocating rides first to those who bid
high for them. However the price surging is still an inadequate pricing mechanism due to two
reasons. One, no one outside of Uber knows how the algorithm is exactly calculated, so the surge
multiplier is basically a mystery. Media reports from Sweden suggest that Uber has tested surge
multiplier values as high as 50X(Dholakia 2015).This is unreasonable, even from the company's
perspective as it stains its brand reputation and reinforces the idea that Uber's main concern is
extracting every single dollar out of its consumers. It also spreads unfavorable notions of
uncertainty and lack of transparency in the rider's mind which may ,in turn, result in a loss of
trust for the company. Secondly, the current surge-pricing is too volatile as studies show that they
have changed every 3 to 5 minutes within the same hour. The solution here is simple, Uber
should announce a reasonable multiplier cap( for example, 5X ) for its own good and modify its
strategy to provide more predictable rides to its consumers. Only after the current price structure
is amended as such can we adopt it in both economies and move to other regulatory issues like
whether Uber drivers are employees or not.

TO BE OR NOT TO BE: EMPLOYEES?

Since individuals working for companies in the sharing economies are legally not
considered as "employees" but as independent contractors, they aren't eligible for insurance,
minimum wage, protection against unfair dismissal, vacation pay, sick pay and other typical
work benefits. Even so, when Uber partners were asked between a steady 9-to-5 job with set
salary plus benefits and a job where they can choose their own schedule, 73 % chose the latter.
As 52% of the drivers have other jobs, it's not surprising that a vast majority of them(about 75%)
admit that Uber is a steady secondary source of income for them(Hall 2017). Not only that, Uber
further boasts of its unparalleled flexibility by stating how 51% of drivers are working less than
15 hours a week compared to only 4% of taxi drivers on its website. Stripping these individuals
of what they value the most by rebranding them as "employees" is thus an unprofitable decision
for both the company and its contractors. However we must also address how both drivers and
customers lose all their ratings or "Reputation capital" when they change from one company(e.g.
Uber) to another (like Lyft). Although there are several similar platforms to choose from, barriers
to switching in between them effectively creates a uncompetitive sharing economy where the
innovation is likely to die with the rise of monopolies. Instead of a bureaucratic and more
expensive government regulation, we should enforce users to sign up to such services through a
third-party company such as 'TrustCloud' to link all reputation capital between similar
platforms(e.g. reviews of both Uber and Lyft drivers). This will effectively make changing
companies much easier while making the application process with all its fees and background
checks a one-time task. Also,the risk of being banned from multiple platforms will deter
suppliers from exploiting customers. Moreover,this will spur innovative pricing schemes and
expand the variety of services as companies can now directly compete one another, benefitting
both the consumer and producer. As 'TrustCloud' has no incentive to match underqualified
individuals with work even with lower wages, we can invest our trust in a safer, fairer and more
innovative sharing economy.

References Cited:
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<https://www.airbnb.ca/about/about-us?locale=en>.

Jeffries, Adrianne. "TaskRabbit takes on another $13 million in funding as investors bet big on
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Dickey, Megan Rose. "San Francisco taxi company sues Uber for predatory pricing tactics."
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Morrison, P.S., 1997. Restructuring effects of deregulation: the case of the New Zealand taxi
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Reference for Graph:

Petropoulos, Georgios. "Uber and the economic impact of sharing economy platforms." Bruegel.
N.p., n.d. Web. 29 May 2017.