Collaborative economy: a competition (or regulation) issue?

By Ángela María Noguera*

Some weeks ago I attended a conference about collaborative economy in Madrid (http://www.aedc.es/seminario-sobre-economia-colaborativa-y-promocion-de-la-libre-competencia-en-el-mercado/). The main purpose of the conference was to discuss whether this new way of approaching consumers (or better, of consumers approaching offered goods and services) should be analyzed from a competition law and economics perspective. I hadn’t thought about this phenomenon before, so I share some of what was discussed and the arising questions.

Collaborative economy or sharing economy consists basically in offering goods and services that are being sub utilized and which use can be maximized. It is the case, for example, of a spare room or guest room in a house, sharing a car with others to travel from one place to another, using a common backyard to plant vegetables in a neighborhood, sharing a meal, listening to music, etc. (v.gr., Airbnb, Bla Bla Car, Spotify, Deezer, Eatwithme). It is a change in the consumption paradigm as it is transforming from acquisitive consumption (buying goods and services) to consumption of use.

There is no novelty in the principles of the sharing economy if we think that many communities with certain degree of solidarity have been sharing their goods and services forever. And more than one of us has let the cousin of a friend sleep in our sofa or spare bedroom, or has traveled by car with the friend of a friend who is going to the same destination that one is heading to.

Thus, what appears to be the turning point is the organization of the sharing tradition. This well-known and anciently practiced solidarity is now a global phenomenon that is now accessible through virtual platforms. Thus, we may say that a market, in its simplest form, has been created.

A basic definition of market could be that it is a place where forces of supply and demand meet. So now, with this ancient/new paradigm of collaborative economy it is no longer necessary to have any kind of relationship (the cousin of the cousin of a friend) whatsoever to get to use someone’s sofa for a couple of nights. It is as simple as downloading an application on a smartphone or surfing the internet to find what you need. Then, with few clicks you can coordinate the service, set the date, pay and that’s all. That’s how demand and supply meet and that’s how the service is hired.

This organized scheme, the simplicity to acquire the services and the existence of online platforms of suppliers are the ingredients starting to raise some concerns from the authorities. Is offering these services legal? Is it necessary to regulate them?

What is the role of platforms? Services are often offered through legally established companies who are developing legal activities, so there is nothing bad about it. However, platforms do not provide the services they offer and only serve as “marketplace”. What’s their role? Should they be regulated? Can they charge commissions? Are they jointly responsible for service failures or if, for instance, someone has an accident in the property or car of the unknown person? Many questions with one foreseeable answer by authorities: “regulation”.

I’m not particularly fond of such an answer. I’m actually of the opinion that in many cases excessive regulation is more harmful than beneficial, but that is a whole discussion that might go in another post, so I won’t discuss it here.

Specific questions arise from a competition law perspective: are these services competing with traditional services or are they separate markets? For instance, it is worth wondering if Airbnb competes with regulated hotels, hostels and B&B. Or if Bla Bla Car competes with public transportation services. If that were the case, could we be in a discrimination scenario between traditional and non-traditional services? Some panelist in the conference recalled that hotels are obliged to comply with more than 50 specific regulations to be qualified to provide their services (sanitary regulations, noise control, fire and ventilation control, formally hired employees, food…) and the same goes for public transportation companies.

And even if the sharing economy services don’t compete with traditional services, why aren’t they regulated? Should they be? It may seem contradictory to think of regulation when apparently the role of these platforms is to aggregate information of something that has always existed (collaboration between people). However, what happens if the collaborative economy is provided by companies or individuals who buy cars or houses with the exclusive purpose of renting them via these platforms, detouring from the original principle of offering sub utilized goods? How to control such situations, which are evidently arising?

The way I see it, and as it was explained by some of the panelists, is that the current main concern seems to be of regulation policy more than competition policy. Nevertheless, I think we should be open to analyze how the new market dynamics and paradigms can affect the economic system that we currently know (or at least try to decipher). It is an additional challenge for competition policy, which sooner or later shall accommodate to this new reality.

*Associate at Garrigues (Colombian Office)
Majors in both economics and law, Universidad de los Andes (Bogota, Colombia)
LLM in International Business, Tilburg University (Netherlands)

Note from the editors: a spanish version of this post was originally published in Lalibrecompetencia.com. This blog entry comes as part of our collaboration agreement with Lalibrecompetencia.

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One thought on “Collaborative economy: a competition (or regulation) issue?

  1. These new products (or services) are meant to target a demand that was not previously satisfied or to simply reduce information asymmetries in the economy (in the case of airbnb), resulting in a higher competitive market.
    Regulations to these new services may apply but with the cost of taking away incentives these entrepreneurs had in the first place. I’m not in favor of regulation (it really depends on the market) but I agree that this is a very interesting topic.

    Congratulations, I loved the article!

    Liked by 1 person

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