The Sharing Economy: Its Pitfalls and Promises

Research

The Sharing Economy: Its Pitfalls and Promises

MICHAEL C. MUNGER

1 October 2021

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https://iea.org.uk/wp-content/uploads/2021/10/Platforms-Interactive.pdf

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SUMMARY

Platforms are institutions that solve the problems of delivering a good or service, of clearing payments, and of creating trust between buyer and seller.

In the past two decades, the physical locations in which transactions take place, such as the city market or shopping centre, have increasingly been replaced by online platforms. The platform revolution is an economic revolution as momentous as the Neolithic and Industrial Revolutions.

The platform revolution is delivering reductions in the transaction costs of renting. New and different ways of partitioning short-term ownership have emerged. The shared feature of these markets is that they enable profitable means of commodifying excess capacity that until now could only be wasted. We pay for storage twice: wasted space, and forgone capital value.

The platform economy is making more intensive and efficient use of resources that are otherwise idle. In the long run, the consequence will be a sharp increase in the durability and average life of those resources as they are replaced.

By monetising the deadweight loss of queuing, new software platforms are capturing much of the value that would previously have been wasted by the friction of transaction costs.

Entrepreneurs can now move far beyond aspiring only to sell products or services. They can sell reductions in transaction costs alone.

Services such as Uber are software platforms which make possible transactions that otherwise could not take place. Uber is a disruptive technology which sells reductions in transaction costs, enabling a wide variety of peer-to-peer exchanges and arrangements.

The platform economy is making products and services that once did not exist, or were available only to the wealthy, available universally and practically free of charge.

Some new software platforms are being prohibited by regulators precisely because they work better and disrupt the existing systems of cronyism. Regulators who place restrictions on services such as Airbnb typically ignore the real price signal being sent by the creation of the new platforms, which is that supply is being restricted. The correct solution is to set housing free to expand residential options.

Regulators must embrace permissionless innovation, adopting a strong presumption in favour of allowing experimentation with new technologies and new business platforms.

On the other hand, regulators must avoid outdated thinking about antitrust policy as focusing on market structure. Platforms, by their nature, are giants. Any platform is by definition a monopoly within its own boundaries; in fact that is the advantage of platforms. The new regulatory framework must focus on limiting the power of platforms, especially their political power, rather than forcing inefficiency and waste by restricting their size.

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Michael C. Munger

Michael Munger is a researcher and administrator at Duke University in North Carolina. He is a senior research fellow at the Independent Institute in Oakland, California, and at the American Institute for Economic Research at Great Barrington, Massachusetts. He has taught at Dartmouth College, the University of Texas, and the University of North Carolina. His published research has covered spatial theory, political decision-making and the problem of voluntary exchange. His most recent book, Is Capitalism Sustainable?, was published in 2019 by the American Institute for Economic Research. He is a past editor of the journal Public Choice, as well as a past president of the Public Choice Society. His first professional position was as a staff economist at the US Federal Trade Commission. He received his PhD in economics at Washington University in 1984.