07 Digital Age

21.04.2015

New technologies, the collaborative economy and regulation

Albert Banal

The generalisation of Internet access through mobile devices has prompted the rise of many “collaborative economy platforms”. Airbnb, which offers users the possibility of renting rooms in private homes for short periods, or Uber, which offers ride sharing services using private cars, are just a couple of examples. The last few years have seen a proliferation of platforms enabling the rent or sale, between private individuals, of all types of goods and services, from the renting of tools to wedding dresses or dog walking services.

The collaborative economy, thanks to information technology, allows a more productive use of underutilized resources: there are millions of people with free rooms and millions of cars and unemployed drivers. By using these platforms, consumers have a broader offer, which increases competition. The flats offered by Airbnb have increased the accommodation offer in many cities, and are often at more accessible prices than most hotels. The Uber cars have provided many cities with a larger taxi service, available during rush hour and at night, in more areas, with cleaner and more comfortable cars and at more competitive prices. All this has permitted the collaborative economy to gain the trust of millions of consumers around the globe, and at the same time, many investors.

The collaborative economy is one of these disruptive innovations that radically change business models. The invasion of Uber and Airbnb has put taxi drivers and hoteliers on the warpath. Taxi drivers, a collective with a huge capacity to cause disruptions, succeeded in persuading a judge to close the Uber service in Spain. They argued that the Uber service is disloyal competition because it does not pay taxes or have a business licence. Evidently, the government and the Tax Agency must ensure that these platforms as well as those who provide the services pay tax.

But the big question is, should services offered by the collaborative economy, such as accommodation or taxi services, be regulated? Given the lack of consumer information (which economists call asymmetric information), the main arguments are, as far as I understand, consumer protection and quality control. Can the public be protected without regulating theses services? A good example is the airline sector which, although historically operating under strict regulations, opened up to competition at the beginning of the nineteen eighties. Although the government continues to implement security controls, it no longer controls the introduction and the price of air routes. Thanks to this, today we have an equally safe but much broader service and at much lower prices. Now it is the market and consumer opinion and choice that regulate the offer, thus giving airline companies the incentive to offer good services at affordable prices. In this way, the government should also control drivers and vehicles that provide services through Uber by introducing mandatory controls and technical inspections. Private accommodation services should likewise be regulated.

And what about quality control? The technological platforms themselves provide the most efficient quality control: that of user opinion. A good reputation, which is crucial for the Uber cars and strangely unimportant for taxi drivers and official taxi companies, is the best way to achieve a fast, efficient and pleasant service. In the same way, travellers’ opinions on Airbnb accommodation and hotels encourage the service providers to offer the best quality and the best service at the best price. In the case of taxis, the GPS has completely or partially eliminated the need to know all the streets in a city, which has made it easier and cheaper to provide the service, thus making the market more competitive.

The collaborative economy, with the support of new technologies, is one of those disruptive innovations that radically change business models. Unfortunately, these changes, although beneficial for most of us, leave behind some victims. Official taxi drivers, usually self-employed workers, pay a lot of money for licences. But also, in this case, new technologies and the collaborative economy often highlight the existence of unfairly regulated sectors. We must take advantage of these opportunities to encourage competition and, unlike the airline sector, this must be done fast. As they say in the annals of competition, we must protect competition, not competitors.

Albert Banal

Albert Banal

Director of the Master of Science in Corporate Finance and Banking, UPF Barcelona School of Management

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