Platforms such as Amazon, Uber, and Airbnb are sources of both utility and great challenge. Besides the traditional problems inherent in monopolies and monopsonies, Sabeel Rahman notes the circumvention of license regulations, tax evasion, low wages, limited consumer protection, and other forms of exploitation. Some of these problems emerge because governments are uncertain as to which rules apply. Then again, in certain jurisdictions, such as Germany and the Netherlands, there is no confusion: Uber drivers need permits or they risk being fined and arrested. And in some instances, rules designed for traditional businesses are being applied to platforms because these are regarded as digital equivalents, even if they provide novel services. Platforms are too quickly assumed “lawless” middlemen.
At the same time, the benefits they offer are often overstated. The idea behind the sharing economy is not complicated or new: consumers will share underused goods when transaction costs related to the coordination of economic activities are low. Add to this formula an economic crisis, young professionals eager to travel, and user-friendly software, and you get Uber or Airbnb. These platforms promise employment and broader access to products and services, but they also control prices, wages, and working conditions. As Rahman points out, Uber offers consumers low fares, but driving for the company is far from a dream job. Does that mean platforms ought to be heavily regulated in the manner of taxis and hotels? There are several factors to consider.
The benefits offered by platforms are often overstated.
Although Uber and Airbnb have a significant market share and could be compared to monopsonies exploiting cheap labor, I would hesitate to categorize them as such. There are indeed many Airbnb hosts, but are they economically dependent on a single platform? If they are and they provide services on a full-time basis, then these hosts are not engaging in sharing-economy activities worth exempting from the regulation of commercial activities.
But if Uber and Airbnb service providers are truly operating on an informal basis, they might merit fewer regulations. In that case, however, new problems arise. Relying on peer-to-peer reviews and trusting the kindness of strangers only works when things don’t go wrong. And sometimes they do.
Platforms have internal codes and rules, but they remain to a great extent in a legal gray area. There are a number of reasons this is so. First, applying the rules designed for equivalent commercial services would stifle the intrinsic benefits and innovations of the sharing economy. For example, individuals might no longer be allowed to rent their guest rooms if they have to comply with hotel and zoning regulations. Second, these platforms offer distinct services to different types of consumers: an Airbnb basement is not a family-friendly hotel or conference venue. It is not unreasonable to accept internal or flexible external rules for peer-to-peer interaction, as long as the suppliers of these services are truly peers who do not use online platforms to circumvent existing regulations of full-time commercial providers. Rahman does not appear to consider this. Third, the regulatory challenges of Uber and other platforms are specific to online services and are not solved by traditional regulations. A potential solution would be to enact new regulations that take these special challenges into account.
One approach might be to devise something akin to the fiduciary duties applied to brokers. Airbnb and Uber recommend service providers to consumers because they presumably have access to more information about them—for example, about a driver’s safety record and ability to serve the public. With this recommendation should come the duty to act in the best interest of the consumer and to uphold a standard of care. In the case of Airbnb, that might entail a duty to disclose potential risks of lodging in a given home, which have escaped the peer-review process. Airbnb initially visited hosts in New York City and screened their residences.
Nowadays, with the fast development of platforms, this sort of attention is hard to provide, but there is real advantage to it. If platforms wish to sell the idea that sharing is caring, they should embrace the responsibility of guarding consumers’ trust. Consumers who would never hitchhike will trust an Uber driver because she is an Uber driver—not a stranger picking them up on the street. This trust is the basis of platforms’ success, and they should do all they can to cultivate it.