The sharing economy is taking off. Two standouts have been Uber and Airbnb. Uber is a service that connects people in need of rides with drivers willing to give one. As of early 2016, Uber was available in more than 60 countries and 400 cities worldwide. Airbnb is a service that connects people looking for a place to stay with people who have a room or a house available to rent. As of early 2016, Airbnb had more than 1.5 million listings in 34,000 cities in 190 countries. As with any successful new business, many people are looking to duplicate successful business models and try to understand the secrets of success. Since both Uber and Airbnb have thrived on disrupting existing markets that are heavily regulated (i.e., taxi services and hotels), the question that comes to many people’s mind is: Are Uber and Airbnb breaking any laws or regulations to drive their success?

Taxi services are heavily regulated. To provide for rider safety, drivers must undergo extensive screening and background checks, and vehicles are regularly inspected. In addition, to control markets and limit the number of taxis in the street, the economics of taxi systems are often regulated at the city level. A medallion (taxi permit) is required to provide taxi services, and there are a limited number of them available. To own a medallion, a driver (or taxi company) must comply with all of the regulations and pay an often-substantial fee. To drive for Uber, no such fees or inspections are required—though the service has added background checks in certain jurisdictions. Likewise, hotels and other forms of lodging are regulated as well. In addition to the properties themselves being regulated for safety and security, many jurisdictions are interested in maintaining consistency in their zoning laws and ensuring the proper collection of tax revenue. Those renting out their apartment or house via Airbnb are not affected (or ignore) such regulations; further, as Airbnb hosts typically do not collect lodging (or occupancy) taxes from the guests, municipalities typically lose out on considerable tax revenues. Another criticism is the reduction of long-term housing associated with the unregulated renting of properties in residential neighborhoods.

Both Uber and Airbnb would argue that they are simply removing transactional friction from markets for services that are already permissible under existing laws. Others argue that Uber and Airbnb are simply shifting costs to others involved in the value chain for these services, such as drivers and homeowners. The challenge remains that the existing laws and regulatory frameworks provide for and protect existing economic stakeholders and interests. Whether new sharing economy entities like Uber and Airbnb are playing fair or not, these stakeholders will not take such challenges lying down. Expect more challenges and highly public disputes to come.

Questions:

Should services like Uber and Airbnb have to follow the same rules and regulations as a taxi company or hotel? Why or why not? Explain.

Imagine creating a platform for individuals to connect and sell meals out of their home or apartment to paying customers in a way similar to Uber. What concerns could this raise?