Sharing Economy. Regulatory Approaches for Combating Airbnb's Controversy Regarding Taxation and Regulation

TABLE OF CONTENTS

Abstract

List of Figures

List of Tables

Introduction

1 The Sharing Economy Landscape
1.1 Definition
1.2 The Emergence of the Sharing Economy
1.3 Forms of Appearance
1.3.1 Product Services Systems: Access over Ownership
1.3.2 Redistribution Markets: Recycling 2.0
1.3.3 Collaborative Lifestyles: Bundling of Intangible Resources
1.4 People Participating
1.5 Key Drivers for Participating
1.5.1 Sustainability
1.5.2 Enjoyment
1.5.3 Reputation
1.5.4 Economic Benefits
1.6 Downsides of the Sharing Economy
1.6.1 The Distributive Implications
1.6.2 Poor Conditions for Workers in the Sharing Economy
1.7 Future Prospects

2 Airbnb - An Example of Collaborative Consumption
2.1 Background
2.2 Facts and Figures
2.3 The Business Model of Airbnb
2.3.1 How the Platform Works
2.3.2 Business Model Canvas
2.3.3 Restructuring the Traditional Value Chain and Operating Model ..
2.4 Airbnb’s Impacts
2.4.1 Economic Impacts
2.4.2 Social Impacts
2.4.3 Consumer and Public Safety Impacts

3 Airbnb’s Controversy Regarding Taxation and Regulation
3.1 Regulatory and Fiscal Issues
3.2 Airbnb’s Approach
3.3 Regulatory Responses

4 Discussion about Regulating the Short-term Rental Market
4.1 Regulatory Challenges
4.2 Principles for Regulating Airbnb
4.3 Self-Regulatory Approaches
4.3.1 Self-Regulation and Self-Regulatory Organizations
4.3.2 Recommendation for Successful Self-Regulation
4. Conclusion

References

Appendix

ABSTRACT

Over the last few years, the sharing economy has grown substantially with new high-profile businesses emerging. Especially Airbnb became an integral part of the accommodation industry and disrupted traditional hotel and Bed and Breakfast businesses.

However, at present, Airbnb has to face many controversies due to consumer safety, regulatory and tax evasion issues. As regulators and legislators established laws and regulations with the traditional economy in mind, they are not suited for the sharing economy and application often remains uncertain, especially in the area of taxation. Consequently, the difficulty of establishing an effective regulatory framework for the sharing economy is receiving considerable attention currently.

Therefore, this thesis aims to identify some of the challenges that will be of concern to regulators when developing a regulatory framework and outlines some guiding principles for regulating Airbnb. Finally, this thesis finds that a self-regulatory approach could be the most effective solution to encounter the difficulties and controversy.

LIST OF FIGURES

Figure 1: The Scope of the Sharing Economy

Figure 2: Percentage of US adults' participation in the different sectors

Figure 3: Distribution of age and household income of sharing providers

Figure 4: Benefits of the Sharing Economy

Figure 5: The Sharing Economy Life-Cycle

Figure 6: Sharing Economy Sector and Traditional Rental Sector projected Revenue Growth

Figure 7: Sharing Economy and Tranditional Rental Sector Growth

Figure 8: Business Model Canvas Airbnb

Figure 9: Four Fundamental Assumptions That Govern Business

Figure 10: Four Fundamental Questions For Every Business

Figure 11: Four principles for regulating Airbnb

Figure 12: A Simple Single Dimensional Regulatory Spectrum

LIST OF TABLES

Table 1: Airbnb Versus Hotels by Revenue Q3 2015

Table 2: Applicable tax rates

INTRODUCTION

You are going on vacation or have a spare room in your house? Let’s rent it out on Airbnb.com. You don’t have cash to afford a taxi? Just open your Uber App and search for a driver nearby.

This recent trend is called collaborative consumption and represents a cornerstone of the new economy we are living in. Internet services like Airbnb, Uber, and Co. challenge the old economy idea by encouraging people to distribute their properties all over the world (Brodwin 2012).

With the emergence of the internet, consumers started developing completely new demands: instead of buying and owning products, they only ask for access to goods and prefer to pay for the experience of temporarily access (Bardhi & Eckhardt 2012). Why do I need to buy a hammer when I only want to drive a nail into the wall? This changing attitude of preferring to buy the kludge rather than purchasing the product leads to a significant change in the world economy (Stampfl 2011).

Thanks to modern technology, the practices of sharing, exchanging, borrowing, renting, and donating revived the old-established business practices. The phenomena of the sharing economy brakes the economic cycle of producing, consuming and disposing and the consumption of the 20th century is gradually removed by the peer-to-peer consumption of the 21st century. While before the economy was determined by credits, advertisement and individual ownership, in the sharing economy reputation, community, and shared access became a key role (Stampfl 2011).

Since at least the term “sharing economy” was included into the Oxford English Dictionary last year, one can figure at that the sharing economy is not only a passing trend but a business model that is here to stay (Botsman 2015). However, while the sharing of unused resources delineates a more effective utilization, over the past few years more and more issues arose concerning the new industry. Business operating in the sharing economy are claimed to gain an uncompetitive advantage by bypassing many of the costs that traditional competitors must incur, like licensing, insurance and taxes (NSW Business Chamber 2014).

The online community marketplace Airbnb, which is matching travelers with hosts, represents the biggest sharing economy company, with an estimated value of over USD 25.5 billion. Despite its tremendous growth and incomparable success, Airbnb found itself under growing attack from city authorities around the world over the past few years. According to a report of New York State attorney Eric Schneiderman, 72% of Airbnb’s 25,500 New York listings violate hotel and housing laws, and Airbnb hosts owe the state around $33 million in unpaid taxes (Helm 2014). Consequently, in 2014, the government of Barcelona fined Airbnb €30,000 for illegal apartments because it perceived the rentals as a serious breach of local tourism laws. In addition, cities across the US have been cracking down on Airbnb and homeowners by enacting city laws, creating offices to enforce regulations and ordering the company to pay millions of dollars in hotel taxes (Kieler 2015).

The rapid rise of Airbnb and other sharing economy sectors has led to significant industry and public debates on how to handle the prospects and challenges it represents for the respective local economy. Although most governments have realized the need for regulating the sharing economy, most regulators based their approaches on traditional regulatory mechanisms and consequently failed. This revealed that imposing traditional regulatory approaches onto the sharing economy is no possible solution as it won’t “meet the primary objectives of efficiently maintaining a level playing field for all industry stakeholders to compete and effectively safeguard consumer and supplier welfare” (NSW Business Chamber 2015, p.2).

Due to this, another new regulatory approach is required. A one-size-fits- all approach, however, would not be effective. Therefore, a response tailored to each sharing economy sector is needed (NSW Business Chamber 2015). As a discussion about regulating every sharing economy sector would be beyond the scope of this thesis, the focus in the following paper will be on the short-term rental market, represented by the online platform Airbnb. This will serve as an illustration of the issues related to the sharing economy and the manner how regulation must be tailored to effectively respond to individuate aspects of the extensive sharing economy.

The contribution of this thesis is to gather how regulators have responded and recommends some principles regulators and legislators should consider for developing an effective regulatory approach. Hereby, the argumentation will be that a self-regulatory approach that actively includes both Airbnb as well as existing nongovernmental stakeholders in designing and enforcing the regulation would be most effective.

The first chapter provides an overview about the vast sharing economy landscape and its emergence. Furthermore, it explains its various forms of appearances as well as the key drivers for people to participate in the sharing economy. The chapter concludes by revealing some of the downsides and analyzes its future prospects.

In the second chapter, the online accommodation platform Airbnb is introduced as an example of the sharing economy and it will take a deeper look at its special business model by means of the business model canvas. As a last point, Airbnb’s impacts will be examined.

The third chapter broaches the issue of Airbnb’s controversy related to taxation and regulation, and describes some of the regulatory approaches and Airbnb’s responses to these subjects.

In the last chapter, the regulation of Airbnb’s short-term rental market is discussed by highlighting the regulatory challenges. It also outlines some guiding principles for an effective regulatory framework and will conclude with the recommendation and explanation of a self-regulatory approach.

1 THE SHARING ECONOMY LANDSCAPE

As the sharing economy is still in its early stages, for most of the people  especially the older generations  it is difficult to define or even understand what exactly is meant with this expression. Confused by the many terms that are common for describing start-up models using digital technologies to directly match service and goods providers with customers, terms like “peer economy”, “collaborative economy”, “on-demand economy”, and “collaborative consumption” are often equalized, even though this is not correct (Botsman 2015). For a better understanding of the different meanings, this chapter defines the scope of the sharing economy and provides information about its different forms of appearances.

1.1 DEFINITION

Originally the term sharing economy was established in the 1980s by Harvard economist Martin Weitzmann. In its core, it means that the prosperity increases for everybody, the more products and services are being shared within the market participants. For some time past Weitzmann’s assumption now is also being transferred to content in the internet (Hilker 2014).

Since the emergence of the new trend various experts tried to define the term. In this thesis, we will use the one of the Oxford Dictionary (2015), which defined sharing economy as “An economic system in which assets or services are shared between private individuals, either for free or for a fee, typically by means of the Internet: Thanks to the sharing economy you can easily rent out your car, your apartment, your bike, even your Wi-Fi network when you don’t need it.”

For getting clear on terminology, it is important to state that despite the existing overlap between sharing economy and collaborative consumption, these terms are no synonyms since there can be found significant differences. (Botsman, 2015).

Hence, for deciding whether a company belongs to the sharing economy, it may be helpful to filter it against clear criteria. Rachel Botsman, pioneering author and advocate at the helm of the movement, divides these into five key criteria:

As a first criterion, the business idea has to create value by offering unused or under-utilized assets, either for monetary or non-monetary benefits. Furthermore, it is necessary that the company has a clear values-driven mission with important fundamentals like transparency, humanness, and credibility. Thirdly, the objective of the company is to make the lives of providers economically and socially better, while providers should be valued and respected. Besides, customers should have the advantage of getting cheap access to goods and services instead of acquiring possessions. As a last indicator, “the business should be built on distributed marketplaces of decentralized networks that create a sense of belonging, collective accountability and mutual benefit through the community they build” (Botsman 2015).

Figure 1: The Scope of the Sharing Economy

illustration not visible in this excerpt

Source: own elaboration based on Botsman 2015

Finally, as depicted in Figure 1, the sharing economy is regarded as a part of collaborative consumption - to be precise - the Business-to-Consumer and especially the Peer-to-Peer segment, where individual buyers and sellers are brought together. These P2P marketplaces often include the involvement of a third party that charges a fee for facilitating transactions between buyers and sellers while reducing transaction risks (Hayes, A. 2015). Besides, according to Botsman, the sharing economy is operating in three distinct sectors: collaborative lifestyles, product service systems, and redistribution markets, which will be further explained in Chapter 1.3.

1.2 THE EMERGENCE OF THE SHARING ECONOMY

The origins of the sharing economy date back to 1995, when 28-year-old software developer Pierre Omidyar created AuctionWeb, which today is worldwide known as eBay. AuctionWeb began with a listing of a single broken laser pointer, which had no serious purpose to be sold and actually only was intended to be a test. When the item surprisingly was sold for $14.83 to a collector of broken laser pointers, Pierre knew that this was the beginning of something big (Hsiao, A. n.d).

From then on, the development of information technologies together with the emergence of the web 2.0 lead to the evolution of more and more online platforms that promote user-generated content, collaboration, and sharing, including open source software repositories (e.g. Github), collaborative online encyclopedias (e.g. Wikipedia), peer-to-peer file sharing (e.g. Napster, Kinox.to) and other content sharing sites (e.g. Youtube, Instragram) (Kaplan & Haenlein 2010).

Hamari, Sjöklint and Ukkonen (2015, 2) therefore conclude that “the phenomenon of the sharing economy thus emerges from a number of various technological developments that have simplified sharing of both physical and nonphysical goods and services though the availability of various information systems on the Internet.” Thanks to the boosted trust and reliability of online payment processes, consumer’s confidence in purchasing and hiring goods and services through peer-to-peer networks and companies in the internet increased significantly. Reviews and peer-to-peer ratings represent a critical factor for the success of the sharing companies, which warrants trust and transparency for consumers business deals (Euromonitor International 2014).

Apart from that, venture capitalist Mark Suster (2013) suggests several factors that have contributed to the emergence of the sharing economy. These are among others underemployment, debt, globalization, scarce resources, transparency, and demographics. Encountered with these new challenges, many consumers moved away from the 20th century’s trend of hyper consumption and turned towards more collaborative forms.

Additionally, Rachel Botsman (2010) suggests four key drivers that contributed to the rise of the new socio-economic phenomenon, which are: a renewed belief in the importance of community, a torrent of peer-to-peer social networks and real-time technologies, pressing unresolved environmental concerns and the global recession that has fundamentally shocked consumers’ behaviors. For instance, due to the financial crisis in 2007/2008 consumers had less money available and therefore needed to save money. As a consequence of this development, many peer to peer firms have been established (Euromonitor International 2014).

As a final critical factor, Hilker (2014) mentions the growing up of the new generation Y, which replaced the baby-boom generation X. Grown up with digital media, they have been connected to the internet their entire lives and therefore pose a promising challenge for companies, which evoked the regularly growth of new business ideas and models in the sharing economy.

However, the sharing economy is nothing that just recently emerged, but rather is an old-fashioned concept. It can be seen as a throwback to the good old days, when everyone knew each other and when the practices of bartering and cooperating were firm parts of everyday life. This shows that against some opinions, technology was not a necessary condition for the emergence of the sharing economy, but it made it possible to reach such unprecedented heights (Macken 2011).

1.3 FORMS OF APPEARANCE

As already mentioned in section 1.1, the sharing economy is operating in three different sectors, namely Product Services Systems, Redistribution Markets, and Collaborative Lifestyles. Each of these sectors in turn is characterized by distinct appearances. Therefore, in the following section we will have a closer look on the sharing economy’s diverse faces.

1.3.1 Product Services Systems: Access over Ownership

For many years, our economy was marked by unprecedented consumption, overdrawing our planet’s resources while businesses had to struggle with rising raw material costs, enhancing carbon emissions, pollution and waste. However, in the last time, people’s attitude towards consumerism has shifted. An increasingly ecological awareness and the desire for a sustainable lifestyle lead to the concept of consumption without ownership, and is adopted by more and more people (Earley 2014).

In addition, the new so-called millennial generation is more cost- conscious post-recession, striving for experiences and entertainment rather than possessions. Instead of reclusive ownership, they prefer to pay to access the benefit of a product. Eventually, we are interested in washing our clothes or mow the lawn - washing machines and lawn movers merely serve as a means to an end and therefore only are of secondary interest. As a result of this altered consumption patterns, our economy has become increasingly marked by dematerialization and we can observe a progressive service orientation (Stampfl 2011).

Due to these new trends, some companies started connecting their products with services in order to make them more attractive for their customers and thereby set themselves apart from competitors. Plus, this service is no longer just considered as an accessory for the product to increase its sales opportunities, but vice versa: the service becomes the core of the offer. Like this, savvy businesses emerged, with companies providing access to products including cars (Zipcar), toys (Dim Dom), clothes (GirlMeetsDress, Kleiderkreisel) as well as films (Netflix), without the burden of ownership responsibility (Earley 2014).

Access over ownership hereby is the most common mode of exchange. In Product Service Systems, “goods remain in the ownership of the provider(s) and what a PSS customer actually buys is the functionality or performance of the goods in the form of a service" (Ericson, Müller, Larsson & Stark, 2009, 62).

One of the most famous examples for a company that is selling access over ownership is Zipcar, the world’s largest pay-as-you-drive car sharing company, where users can rent cars for short time periods, often by the hour. It differentiates itself from traditional car sharing services as the cars are spread across a city, providing occasional drivers a more sustainable alternative to car ownership (Stokes et al. 2014).

To get such a 24/7 access to freedom of mobility it only takes four easy steps: register on the website, book a car, board and drive off. Like this, Zipcar provides a car that almost everyone can afford. And even more - with Zipcar you get a car for every occasion, whether you need a family vehicle or a sportster. Especially in metropolitan areas, car sharing offers various benefits: you only have to pay when you use the car, you don’t need to search a parking space as the car is returned to a reserved parking, and you don’t have to worry about maintenance, cleaning and insurance (Stampfl 2011).

1.3.2 Redistribution Markets: Recycling 2.0

Collaborative consumption also results from our new understanding about the issues of today’s economy, which is not scarcity but the redistribution of abundance. There are more than sufficient products but often they are not in the right hands. So people’s aspiration of ownership is replaced by the desire to reconnect with products in a more meaningful way, protect the environment and regain a sense of community. Due to this, Second Hand is experiencing a revival and product lifecycles are extended (Stampfl 2011).

In redistribution markets, the ownership is passed from one user to another through swapping, donating, and purchasing of primarily second-hand goods (Hamari et al. 2015). According to Botsman and Rogers (2010, 72ff), redistribution markets reallocate pre-owned goods from a person who no longer needs them to someone who does. The objective consists in promoting the reuse of products as an alternative for buying new ones and like this remarkably reduce the bulk of waste we produce. With classical thrift shops, large marketplaces like eBay and craigslist, and plenty of swap sites like Gumtree and thred-Up, redistribution markets efficiently match people’s necessities with other’s offerings. Due to the internet, these online marketplaces managed to win a wide range of participants that attribute value to other people’s trash.

An example of this category is SwapSimple, which is an internet platform where people can trade among each other books, DVDs, and video games they have finished. Those items lose subjective value after the usage and in most cases will not be used a second time. However, the trading platform SwapSimple adds new value to these useless items: for every good sold, you receive points you can use for buying other items (Stampfl 2011).

1.3.3 Collaborative Lifestyles: Bundling of Intangible Resources

The sharing of resources is not reserved for tangible and durable goods, also intangible assets  particularly money, time, room and abilities  are subject to the sharing economy (Felländer et al. 2015).

Joint consumption arises wherever similar interests or lifestyles come together. It is not only the monetary value that is stressed, but also social matters play an important role in the sharing economy. Besides, a new currency is being generated: with time and skills, we can buy what usually is not payable with money (Stampfl 2011).

On TaskRabbit, a site where you hire your neighbors to carry out tasks for you, time and skills are shared; on StudioMates, people share their office spaces and even in the financial sector, sharing occurs through P2P money lending platforms like Zopa (Botsman, n.d.). This social lending platform connects individuals that have money to lend, with people who wish to borrow money, without taking a credit from high street banks. Zopa is the oldest and largest peer-to-peer lending platform of its kind in the world and by lowering entry barriers to lending markets, it achieved to offer access for people who previously were unable to lend money (Stokes et al. 2014)

Besides, new ideas and businesses are appearing steadily, from food, to parking spots and garden sharing. These collaborative lifestyles usually involve real life concurrence between strangers or the sharing of high-risk assets, such as money or houses. Therefore, a high level of trust is indispensable (Botsman n.d.).

1.4 PEOPLE PARTICIPATING

According to PricewaterhouseCooper’s (PwC) US Consumer Intelligence report and research project in 2015, 19 per cent of the total US adult population has engaged at least once in a sharing economy transaction. In the following Figure 2, we can see the percentage of US adults’ participation in the different sectors of the sharing economy.

Figure 2: Percentage of US adults' participation in the different sectors

illustration not visible in this excerpt

Source: PricewaterhouseCoopers (PwC), 2015, p.8

Additionally, PwC found that after participating in the sharing economy, young adults between 18 and 24 years, households with income between $50k and $75k and families with kids in the house under age 18, are those who were most excited about it.

This also supports the finding of Havas Worldwide’s Prosumer Report “The New Consumer and the Sharing Economy” (2014), which explores that especially millennials are embracing peer-to-peer transactions and crowdfunding, and more than a third already participate in sharing services or predict to incorporate within the next year.

Furthermore, PwC identifies that about 7 per cent of the US population are providers in the sharing economy. The following Figure 3 shows the distribution of age and household income of those providers.

Figure 3: Distribution of age and household income of sharing providers

illustration not visible in this excerpt

Source: PricewaterhouseCoopers (PwC), 2015, p.10

As depicted in Figure 3, most of the sharing economy participants are between 25 and 44 years old (48%) belonging to the lower middle-class with an income between $25,000 and $49,999 (24%).

1.5 KEY DRIVERS FOR PARTICIPATING

The key drivers for people participating in the sharing economy can be attributed to the many benefits it provides. Economic benefits, convenience and a sense of community are all factors in pushing adoption of the sharing economy forward (AYTM Market Research 2015). In Figure 4, we can see the perceived benefits of US adults that are familiar with the sharing economy.

Figure 4: Benefits of the Sharing Economy

illustration not visible in this excerpt

Source: own elaboration based on First Advantage “Collaborative Economy Survey” conducted by AYTM Market Research, 2015

As Figure 4 reveals, the main benefit consumers perceive is that sharing services are cheaper than those of the traditional economy. About 50% of the participants responded that it is more convenient, as the internet makes their desires more easily accessible, no matter where they are. As another important factor 42.4% of the respondents mentioned that they prefer to support local people instead of big corporations. For another 39.5% the greater selection was the decisive factor whereas the other 33.4% finds the speed as crucial for their participation.

Besides, Hamari et al. (2015) suggests four key drivers why people participate in the sharing economy, namely sustainability, enjoyment, reputation and economic benefits. Furthermore, Deci and Ryan’s (1985) self-determination theory proposes that people’s motivations can be divided in intrinsic or extrinsic. Intrinsic motivations stem from the intrinsic value or enjoyment linked to the given activity, whereas extrinsic motivations are related to external pressures, such as reputation and monetary benefits. In accordance with this principle, sustainability and enjoyment are considered as intrinsic motivations, while economic benefits and reputation are considered as extrinsic motivations (Hamari et al. 2015). The following subsections discuss these variables in more detail.

1.5.1 Sustainability

One of the basic principles of the sharing economy is the ecological sustainability. Reselling, swapping, short-term renting and lending  all these practices between individuals or through companies are part of the sharing economy and have the potential to increase the usage duration of resource- consuming goods. If sharing models could be operated under the most favorable conditions, savings of up to 20% in terms of waste could be achieved. While renting may enable a reduction in the number of goods produced, the new consumption patterns of sharing models give rise to a more sustainable form of consumption. Therefore, the participation in collaborative consumption is considered as being highly ecologically sustainable (Demailly and Novel 2014).

According to Luchs et al. (2011, 2), collaborative consumption platforms are considered to support a sustainable marketplace that “optimized the environmental, social, and economic consequences of consumption, in order to meet the needs of both current and future generations”. In addition, due to the recession, the sharing economy offered a pragmatic solution to both an economic crisis and a larger psychological value shift and sharing was perceived as a “post-crisis antidote to materialism and overconsumption” (The Economist 2013).

Thus, ideologies and socio-economic concerns like anti-establishment sentiments and preferences for greener consumption are an important factor for the participation and collaboration in the sharing economy (Hamari et al. 2015). As a result, a growing percentage of consumers are willing to utilize their own as well as other people’s resources both more efficiently and effectively, while reducing the impact upon the global environment (Euromonitor International 2014).

1.5.2 Enjoyment

Enjoyment represents the second intrinsic motivation that drives people to participate in the sharing economy. Collaborative consumption enables customized experiences, which represents the key part of the experience. With peer-to-peer accommodation rentals, you not only get a room to sleep in but also get the unique local experience that a traveler could not get in a hotel. When staying with a local, he can give you recommendation about restaurants, places to visits, etc. The startup Vayable is an example of a sharing economy company that is offering unique experiences by matching travelers with local experts who take travelers on tours in their home town. With Vayable, instead of getting a traditional tour with someone reading a script over a megaphone, you get a customized tour by a local expert, who can tailor the tour to your specific interest (Geron 2013).

In addition, for many people economic reasons are only secondary. In fact, they participate in the sharing economy due to the community interaction. On the one hand, sharing of personal experiences allows participants to create and maintain social connections with others. On the other hand, it is also an opportunity to make new friends and developing meaningful connections (Botsman and Rogers 2010). Besides, collaborative consumption platforms not only help strangers to meet and communicate online, they also enable individuals to meet physically. Peer-to-peer accommodation rentals make it possible to meet new people and even make new friends while by using ride- sharing services customers get the enjoyment of meeting the drivers and learning about the people who give them a ride (Geron 2013).

1.5.3 Reputation

Reputation is an important external motivation factor for the participation in collaborative consumption. In the era of collaborative consumption platforms, reputation gained increasingly importance (Botsman and Rogers 2010). Many platforms have established rating systems to provide participants with information about each other. Generally, these systems permit participants to rate and comment on each transaction that they take part in through the platform. The ratings then are available as a summary score and as narrative descriptions of attributes, such as the particular quality and trustworthiness (Federal Trade Commission 2015). Through these peer-to-peer reviews, where consumers and producers are publicly rated for their service performance, people can gain recognition and reputation. And gaining reputation, especially among likeminded people, is what motivates people to share their goods and knowledge (Botsman and Rogers 2010).

1.5.4 Economic Benefits

Collaborative consumption is not only regarded as being ecologically sustainable, it is also considered as economical. Participating in the sharing economy therefore shows a rational behavior of utility maximization wherein “the consumer replaces exclusive ownership of goods with lower-cost options from within a CC service” (Hamari et al. 2015, 6).

Compared to production and consumption through large companies, the sharing economy usually is cheaper, because of the exchange through decentralized markets. Running large hotel chains, taxi companies or banks is quite expensive. In contrast, Uber, for instance, provides a ridesharing service that is up to 50 per cent cheaper than a taxi. This can be attributed to the regulation of Taxi fares by the government and its impacts on the price. Taxi owners have to pay to get their cars legally on the road, cost of maintaining taxis and their safety features with the result of a slightly higher fare for passengers (Safi 2015). Another good example of the cost reduction benefits of decentralized exchange is Zopa, which provides rates that are far more attractive than the traditional bank alternatives as no physical presence is required. The result is a smaller interest rate spread of 1 per cent which implies higher interest rates for lenders and lower interest rates for borrowers (Allen and Berg 2014).

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