Regulation and the share economy

2013-06-16 2 min read

    The past few years have seen the rise of the share economy with companies such as AirBnB, Sidecar, Lyft, and TaskRabbit seeing massive growth. Unfortunately, they’re getting significant opposition from government and the entrenched special interest groups. Most of the pushback is under the guise of consumer safety and that regulations exist to protect the consumer.

    Regulation is necessary when there’s an information asymmetry between a service provider and a consumer. In such cases, regulations help bridge that information gap and make the consumer more comfortable making the transaction. But the internet has been chipping away at this gap by building communities where people can share reviews and experiences. Yelp, Angie’s List, and Google are the largest of these traditional review sites but reviews are starting to appear everywhere that money is changing hands. Ecommerce sites offer reviews and ratings of the products they’re selling. The share economy companies self-regulate by offering communities with well thought out rating systems. Without well functioning communities they wouldn’t survive.

    Consumer safety regulations are making way for ratings and reviews. We’re replacing centralized regulatory agencies with crowdsourced, self-regulating communities. Some regulation will always be necessary, especially in places with large information asymmetries, but these places are constantly shrinking. Of course the entrenched companies are fighting these trends but they should be focused on innovating themselves rather than battling the inevitable.