A relatively new aspect to the marketplaces of a number of cities worldwide is something called the sharing economy, in which people rent assets such as cars and rooms directly from each other. Also called a peer-to-peer economy, these transactions are generally conducted via the Internet from dedicated Websites or mobile apps
A relatively new aspect to the marketplaces of a number of cities worldwide is something called the sharing economy, in which people rent assets such as cars and rooms directly from each other. Also called a peer-to-peer economy, these transactions are generally conducted via the Internet from dedicated Websites or mobile apps. Two of the faster-growing companies in this sharing economy are Uber, which is a ride-sharing service, and Airbnb, which helps travelers find lodging away from the traditional hotel market. Do some research on these two companies and the sharing economy in general and then address the following:
– Discuss the sharing economy from a supply and demand standpoint. How do companies like Uber and Airbnb affect supply and demand in the markets for shared rides (taxis, limos, etc.) and rented rooms, respectively?
– Why do you think these two companies continue to grow and remain successful?
– Some cities have fought to prevent companies like Uber and Airbnb for being able to conduct business. Explain why cities would do this, and discuss whether you agree or disagree with these cities. (Look up the city of Dallas and its ongoing entanglement with Uber.)
– Explain who benefits and who loses when sharing-economy companies like Uber and Airbnb are allowed to operate.
– Also, feel free to entertain me and your classmates with any additional interesting information you have uncovered with respect to the sharing economy and how it relates to topics covered in this class.
1) Uber and Airbnb are disruptive companies which has used simple economics with technology. They do not own anything but offers only platform to connect users and providers thus creating a market. It is to capture captive resources of apartment owner or a car owner as they are connected to user and generating revenue for thmselves as well as for the company. Uber has completely changed the rules with its business model of ‘contractors’ rather than employees and surge pricing. Now Uber is operating in many countries and commands almost $70 billion valuation. In similar terms Airbnb has created a higher supply for travellers through non-commercial players in the market.
2) business needs to be effecient in managing its resources. If lower cost brings down the quality then it is not desirable and also this is not the long run solution. However, it is true that business needs to cut thecot while increasing revenue to have healthy profit margin. Uber and Airbnb have minimal infrastructure and they do not offer employee benefits as they call them as independent contractors. Further, they have created a different market from captive non-commercial players so they do not have to put huge investment and earn fees by connecting users and providers on the platforms. People tend to choose these service as they found traditional business are not customer centirc and outdated.
3) Some cities and states have banned these companies because conflicts with regulation. As workforce of Uber is regarded as contractors, they do not get employee benefits like minimum wages and Uber remained very lax about the past history of its drivers. It pulled out its service from Austin,Texas after asked to provide fingerprint checks for drivers. Further, rape case by one of its driver in Indian capital raised too many questions about its work ethics. Airbnb, on the other hand shrugged off its responsibility calling it as of the lister and not its own. It also remained lax as commercials players used the service in the disguise of non-commercial listings. Security of the users, employee treatment and tax issues brought them at loggerheads with authorities.
4) Disruption is always good as it creates new business models. A very famous case is of Napster which allowed swapping of popular songs on the internet and sued by record companies. It went burst before being bought by Apple but it changed the business model from CD to MP3 on the internet. Such comapnies benefit end users that is consumers because they have plugged holes of old business model. In such scenario old companies loose out because they tend to become stagnant and could not respond to sudden changes which require completely different skills, vision and technology.