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Defining The Sharing Economy

June 25, 2015

The “sharing economy” is a term that is often used to describe online and mobile peer-to-peer platforms that create virtual marketplaces.[1] Within those virtual marketplaces, suppliers can connect with buyers to do business.[2] Many commentators consider Uber, the ridesharing app, to be a prime example of the sharing economy at work since it allows consumers to use their mobile devices to connect with drivers who are willing to provide rides for a designated price.[3] Other apps like Airbnb work similarly because they connect individuals who are willing to provide a service—renting a room for a short time—with consumers who would like to purchase that service.[4] Some also consider eBay[5] and Craigslist[6] the original sharing platforms since they popularized the concept of providing an online forum for buyers and sellers to connect. Given the gamut of apps that could constitute the sharing economy, a principal issue that regulators have faced is defining what exactly distinguishes sharing apps from more traditional methods of linking buyers and sellers.

By Aaseesh P. Polavarapu, Law ’17

The Federal Trade Commission (“FTC”) is a federal agency tasked with preventing business practices that are anticompetitive or deceptive or unfair to consumers,[7] and it has recently initiated dialogue amongst policymakers and industry experts to consider whether sharing platforms require a new regulatory framework.[8] By way of example, some claim that calling Uber a member of the sharing economy is a misnomer because there is no sharing involved: at the end of the day, the app is simply for-hire transportation that should be regulated just like taxicab services.[9] But, as others point out, sharing platforms are not identical because they blur the lines between professional and personal spheres.[10] Sharing applications facilitate the commercialization of traditionally unregulated activities by uniquely drawing on idle resources typically associated with personal use, such as a car that would otherwise sit unused in a garage or a spare room in one’s home.[11] Thus, sharing applications lie in a grey space short of, in this example, commercial taxicab and hotel services.[12]

The FTC has concluded that identifying the unique features of sharing platforms is important because they exist in the context of older regulations designed for more traditional buyer and seller exchanges, and applying those older frameworks to new services may inhibit innovation and block sharing apps from participating in the market.[13] On the other hand, the FTC has noted that regulation might be necessary to protect consumers and to promote public interest goals.[14] Moreover, it might disadvantage traditional suppliers and create unfair competition if new sharing platforms are not required to comply with similar regulatory mandates.[15]

The state of California’s experience regulating ridesharing technologies is an instructive example of the tension between developing new regulations and applying older frameworks. One solution is to develop new regulatory categories for sharing participants. In 2014, California instituted regulatory requirements for drivers participating in ridesharing apps to obtain heightened insurance coverage in case of an accident, but the insurance requirement fell short of more costly commercial requirements.[16] The state concluded that personal auto insurance policies were insufficient because many of those policies included livery carve outs, and they therefore did not cover accidents that occurred when a car was used in a for-hire capacity.[17] In turn, California addressed the gap between personal and commercial insurance requirements by working with insurance companies to develop new products, which ridesharing participants can now buy to add on to their personal insurance policies.[18]

In other respects, however, California has continued to apply traditional regulatory frameworks. The California Labor Commissioner recently ruled that under California law, an Uber driver who brought suit against the ridesharing company was an employee of Uber, rather than an independent contractor, and that the company therefore owed the driver employee expenses, such as mileage reimbursements, toll charges, and interest.[19] The impact of additional, similar rulings could hike Uber’s operating costs and stifle its competitive place in the market. However, if regulators continue to create new legal frameworks for sharing platforms, we may see the development of a new category of worker, such as a quasi-employee or quasi-contractor, that affords some but not all of the benefits to which an employee is entitled. 

The FTC has acknowledged that the platforms that make up the sharing economy can be beneficial to competition for a number of reasons.[20] For example, through sharing economy apps, sellers can connect with a large pool of potential buyers that they might not otherwise be able to reach.[21] Moreover, sharing economy platforms can reduce time and costs of matching buyers with sellers who have never before done business together.[22] The FTC reports that sharing economy transactions “have increased rapidly” and had an estimated value of $26 billion globally in 2013.[23]

Because of the sharing economy’s growth and popularity, regulators also have begun thinking about the policy questions posed by expected technologies. Autonomous cars, for instance, appear to be an anticipated regulatory challenge, exacerbating ambiguities that already exist within the sharing economy, since it is unclear who will be held responsible for accidents that occur in a driverless context.[24] Ultimately, the main challenge for regulators is developing a framework that will capture the unique features of today’s sharing platforms but also will retain flexibility to accommodate those that foreseeably will emerge in the future.

 


  [1] Federal Trade Commission. “FTC To Examine Competition, Consumer Protection, and Economic Issues Raised by the Sharing Economy at June Workshop.” April 17, 2015. https://www.ftc.gov/news-events/press-releases/2015/04/ftc-examine-competition-consumer-protection-economic-issues.

  [2] Ibid.

  [3] Sundararajan, Arun. “Platform Power, Reputation, and Regulation: Policy Framing.” Presentation, The “Sharing” Economy Workshop from Federal Trade Commission, Washington DC, June 9, 2015. Available athttps://www.ftc.gov/system/files/documents/videos/sharing-economy-workshop-part-2/ftc_sharing_economy_workshop_-_transcript_segment_2.pdf, p.22.

  [4] Ibid.

  [5] Jin, Ginger. “Panel 2 - Mechanisms for Trust in the Sharing Economy.” Panel Discussion, The “Sharing” Economy Workshop from Federal Trade Commission, Washington DC, June 9, 2015. Available athttps://www.ftc.gov/system/files/documents/videos/sharing-economy-workshop-part-2/ftc_sharing_economy_workshop_-_transcript_segment_2.pdf, p.2.

  [6] Fradkin, Andrey. “Panel 2 - Mechanisms for Trust in the Sharing Economy.” Panel Discussion, The “Sharing” Economy Workshop from Federal Trade Commission, Washington DC, June 9, 2015. Available athttps://www.ftc.gov/system/files/documents/videos/sharing-economy-workshop-part-2/ftc_sharing_economy_workshop_-_transcript_segment_2.pdf, p.4.

  [7] Federal Trade Commission. “About the FTC.” Accessed June 25, 2015. https://www.ftc.gov/about-ftc

  [8] Adkinson, Bill and Goshorn, Julie. “Sharing thoughts about the sharing economy,” The FTC’s Competition Matters Blog, May 20, 2015, https://www.ftc.gov/news-events/blogs/competition-matters/2015/05/sharing-thoughts-about-sharing-economy.

  [9] Daus, Matthew. “Panel 3 - The Interplay between Competition, Consumer Protection, and Regulation: Business and Regulatory Views.” Panel Discussion, The “Sharing” Economy Workshop from Federal Trade Commission, Washington DC, June 9, 2015. Available athttps://www.ftc.gov/system/files/documents/videos/sharing-economy-workshop-part-3/ftc_sharing_economy_workshop_-_transcript_segment_3.pdf, p.13.

  [10] Sundararajan, Arun. “Platform Power, Reputation, and Regulation: Policy Framing.” Presentation, The “Sharing” Economy Workshop from Federal Trade Commission, Washington DC, June 9, 2015. Available athttps://www.ftc.gov/system/files/documents/videos/sharing-economy-workshop-part-2/ftc_sharing_economy_workshop_-_transcript_segment_2.pdf, p.23.

  [11] Ibid.

  [12] Ibid.

  [13] Adkinson, Bill and Goshorn, Julie. “Sharing thoughts about the sharing economy,” The FTC’s Competition Matters Blog, May 20, 2015, https://www.ftc.gov/news-events/blogs/competition-matters/2015/05/sharing-thoughts-about-sharing-economy.

  [14] Ibid.

  [15] Ibid.

  [16] Sandoval, Catherine J.K. Presentation, The “Sharing” Economy Workshop from Federal Trade Commission, Washington DC, June 9, 2015. Available athttps://www.ftc.gov/system/files/documents/videos/sharing-economy-workshop-part-3/ftc_sharing_economy_workshop_-_transcript_segment_3.pdf, p.5.

  [17] Ibid.

  [18] Sandoval, Catherine J.K. Presentation, The “Sharing” Economy Workshop from Federal Trade Commission, Washington DC, June 9, 2015. Available athttps://www.ftc.gov/system/files/documents/videos/sharing-economy-workshop-part-3/ftc_sharing_economy_workshop_-_transcript_segment_3.pdf, p.6.

  [19] Isaac, Mike and Singer, Natasha. “California Says Uber Driver Is Employee, Not a Contractor.” New York Times. June 17, 2015. http://www.nytimes.com/2015/06/18/business/uber-contests-california-labor-ruling-that-says-drivers-should-be-employees.html?_r=0.

  [20] Federal Trade Commission. “FTC To Examine Competition, Consumer Protection, and Economic Issues Raised by the Sharing Economy at June Workshop.” April 17, 2015. https://www.ftc.gov/news-events/press-releases/2015/04/ftc-examine-competition-consumer-protection-economic-issues.

  [21] Ibid.

  [22] Ibid.

  [23] Ibid.

  [24] Sandoval, Catherine J.K. Presentation, The “Sharing” Economy Workshop from Federal Trade Commission, Washington DC, June 9, 2015. Available athttps://www.ftc.gov/system/files/documents/videos/sharing-economy-workshop-part-3/ftc_sharing_economy_workshop_-_transcript_segment_3.pdf, p.8.

Sundararajan, Arun. “Platform Power, Reputation, and Regulation: Policy Framing.” Presentation, The “Sharing” Economy Workshop from Federal Trade Commission, Washington DC, June 9, 2015. Available athttps://www.ftc.gov/system/files/documents/videos/sharing-economy-workshop-part-2/ftc_sharing_economy_workshop_-_transcript_segment_2.pdf, p.22.

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