sharing economy

The sharing economy, also known as collaborative consumption or peer-to-peer-based sharing, is a concept that highlights the ability -- and perhaps the preference -- of individuals to rent or borrow goods rather than buy and own them.

An important criterion of the sharing economy is that it enables individuals to monetize assets that are not being fully utilized. Underutilized assets range from large goods, such as cars and houses, to products such as tools, toys and clothing.

In the past, people might have discovered and shared such assets through classified ads in a local newspaper or by word of mouth. With the advent of the internet, pervasive computing and the ease of mobile payments (m-payments), however, the platforms for finding and sharing assets have changed.

The growing number of mobile and online platforms that effectively connect people who have underutilized assets with people who want to make use of these assets has made it possible for individuals -- peers -- to widely advertise and sell goods and services that used to be provided by full-time businesses. In the sharing economy, the consumer role is recast as two-sided, with consumers acting as obtainers and providers of resources. Online platforms also allow consumers to endorse providers of resources.

What defines the sharing economy?

That said, the meaning of the term sharing economy is ambiguous, generating considerable debate about what transactions fall under this concept, and causing some to argue that the term is misleading.

One area of contention is whether personal services, such as food preparation or babysitting, obtained through a platform like TaskRabbit, or transportation supplied by ride-hailing services like Lyft or Uber, should be considered part of the sharing economy. Some experts argue these services are more accurately categorized as part of the on-demand economy or gig economy. Other definitions of the sharing economy are very broad and include any transactions facilitated by digital trading forums -- even business-to-business transactions -- not just transactions among peers.

In a 2017 paper, "Putting the sharing economy into perspective," Koen Frenken, professor in innovation studies at Utrecht University, and Juliet Schor, professor of sociology at Boston College, defined the sharing economy as "consumers granting each other temporary access to under-utilized physical assets (idle capacity), possibly for money."

The authors identify the sharing economy's three defining characteristics as consumer-to-consumer interaction, temporary access and physical goods. Thus, under their definition, hitchhiking or carpooling fall under the sharing economy because the consumer takes a seat that would not otherwise be occupied on a trip that was already planned.

By contrast, a trip provided by an Uber or Lyft driver would not have existed without the consumer's order. The authors point to the increasing designation of Uber, Lyft and other transportation platforms as ride-hailing rather than ride-sharing companies as evidence that the transactions they facilitate are apart from the sharing economy.

Similarly, consumer-to-consumer lodging rentals facilitated by Airbnb's platform fit the criteria of the sharing economy, but a person buying a second home to rent it out permanently to tourists does not.

The authors argue that eBay, a large transaction platform often associated with the sharing economy, operates in what they call the second-hand economy because its consumer-to-consumer transactions result in a permanent, not temporary, possession of goods.

How the concept was formed, driving forces

The concept of the sharing economy, or collaborative consumption, is often said to have grown out of the open source software movement in which programmers voluntarily write code and solve problems collectively.

Certainly, the modern concept of the sharing economy is computer-mediated. A host of enabling technologies, including open data, the widespread adoption of mobile phones and the rise of social media platforms that connect people and reinforce the value of peer-based endorsements, have enabled the massive scaling of peer-to-peer-based transactions.

As economists have noted, sharing economy has become an umbrella term, encompassing not only file sharing and open source software, but also crowdfunding, peer-to-peer lending, bitcoin and other forms of blockchain. Some have noted that the age-old barter economy, in which goods are exchanged for value received, has been revitalized by technology, as people barter their personal data in return for services from online platform providers like Google or Facebook.

Effects on the larger economy

One form of exchange most would agree should not be under the sharing economy umbrella is the gift economy, in which services or goods are given without an agreement as to a suitable payment or trade to be made in return.

The sharing economy, as many have noted, has generated enormous wealth. Because the definition of the sharing economy is ambiguous, quantitative analyses of its value are limited. A PricewaterhouseCoopers study published in 2015 predicts the sharing economy could reach $335 billion in spending by 2025 fueled by five primary components: travel, car-sharing, finance, staffing and streaming.

The explosive growth and unevenly distributed economic gains of the so-called sharing economy have led some to question whether its tenet of collaborative consumption is even compatible with the venture-backed platforms that make it possible and the capitalist gains these platforms have created.

This was last updated in July 2018

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