The Debate over the Sharing Economy: Talking Points & Recommended Reading
1) Just because policymakers claim that regulation is meant to protect consumers does not mean it actually does so.
- Cronyism/ Rent-seeking: Regulation is often “captured” by powerful and politically well-connected incumbents and used to their own benefit. (+ Lobbying activity creates deadweight losses for society.)
- Innovation-killing: Regulations become a formidable barrier to new innovation, entry, and entrepreneurism.
- Unintended consequences: Instead of resulting in lower prices & better service, the opposite often happens: Higher prices & lower quality service. (Example: Painting all cabs same color destroying branding & ability to differentiate).
- Ease of entry/innovation in online world means that new entrants can come in to provide better options and solve problems previously thought to be unsolvable in the absence of regulation.
- Informational empowerment: The Internet and information technology solves old problem of lack of consumer access to information about products and services. This gives them monitoring tools to find more and better choices. (i.e., it lowers both search costs & transaction costs). (“To the extent that consumer protection regulation is based on the claim that consumers lack adequate information, the case for government intervention is weakened by the Internet’s powerful and unprecedented ability to provide timely and pointed consumer information.” – John C. Moorhouse)
- Feedback mechanisms (product & service rating / review systems) create powerful reputational incentives for all parties involved in transactions to perform better.
- Self-regulating markets: The combination of these three factors results in a powerful check on market power or abusive behavior. The result is reasonably well-functioning and self-regulating markets. Bad actors get weeded out.
- Law should evolve: When circumstances change dramatically, regulation should as well. If traditional rationales for regulation evaporate, or new technology or competition alleviates need for it, then the law should adapt.
- more choices / competition
- more service innovation / differentiation
- better prices
- higher quality services (safety & cleanliness /convenience / peace of mind)
- Better options & conditions for workers
- Regulatory asymmetry is real: Incumbents are right that they are at disadvantage relative to new sharing economy start-ups.
- Don’t punish new innovations for it: But solution is not to just roll the old regulatory regime onto the new innovators.
- Parity through liberalization: Instead, policymakers should “deregulate down” to achieve regulatory parity. Loosen old rules on incumbents as new entrants challenge status quo.
- “Permissionless innovation” should trump “precautionary principle” regulation: Preemptive, precautionary regulation does not improve consumer welfare. Competition and choice do better. Thus, our default position toward the sharing economy should be “innovation allowed” or permissionless innovation.
- Alternative remedies exist: Accidents will always happen, of course. But insurance, contracts, product liability, and other legal remedies exist when things go wrong. The difference is that ex post remedies don’t discourage innovation and competition like ex ante regulation does. By trying to head off every hypothetical worst-case scenario, preemptive regulations actually discourage many best-case scenarios from ever coming about.
- Just because a law was put on the books for noble purposes, it does not mean it really accomplished those goals, or still does so today.
- Markets, competition, and ongoing innovation typically solve problems better than law when we give them a chance to do so.
Source: Jeremiah Owyang, Crowd Companies
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