The Sharing Economy Concept Definition Research Paper

Abstract

“Sharing economy” is the term that entered scientific literature not so long ago that is why it is still rarely used. It describes “a type of business model that builds on the sharing of resources between individuals through peer-2-peer services – allowing customers to access goods and services when needed” (Böckmann, 2013, p. 1). More and more people and organizations become involved in the sharing processes currently. The forces that trigger such tendency and lead to the global recognition of the sharing economy are still adapting. Still, sharing economy is already successfully practiced in many locations, and people obtain much benefit with its help.

Introduction

“Sharing economy” is the term that entered scientific literature not so long ago that is why it is still rarely used. Being also known as ‘collaborative economy’, this term is used to describe “a type of business model that builds on the sharing of resources between individuals through peer-2-peer services – allowing customers to access goods and services when needed” (Böckmann, 2013, p. 1). The transaction between individuals takes place through sharing economy firms, which are called intermediaries.

The intermediaries provide the platform, such as a website or a smartphone app, rather than providing the service directly. Sharing economy firms started to appear in 2008 and 2010, in the aftermath of the global financial crisis, which prompted people to look for new business opportunities (Gansky, 2010). As a business model, the sharing economy takes different forms and is characterized by unique features. The objective of this paper is to present the overview of this business model, informed by relevant literature. The researcher describes the principles of the sharing economy, different forms of sharing economy, its advantages, disadvantages, and challenges.

The Drivers of the Sharing Economy

Sharing economy becomes more and more popular nowadays, and the drivers behind this process are divided by Böckmann (2013) and Owyang (2013) into three main groups:

Societal drivers include

1. the population density which is increasing,
2. the drive for sustainability,
3. the desire for community,
4. generational altruism (Owyang, 2013, p. 5).

The growing density of the population means that it is easier for people to share thanks to the spatial proximity. The drive for sustainability originates from the environmental awareness of people and their wish to preserve the environment. The desire for community means that individuals wish to connect with one another. Finally, the generational altruism is the wish of people to help one another in a difficult situation. Ridesharing can provide an example of all of these:

1. there are generally many people who need to travel from a residential area of a large city to the business area, so finding a ridesharing companion is easy;
2. ridesharing results in lower fuel consumption than if everyone uses their own car;
3. it is possible to meet new people and connect with them while ridesharing;
4. people who rideshare help one another – they supply either a cheap means of transportation or additional income.

These drivers are important because they give people personal motivation to participate in the sharing economy.

Economic drivers include the ability to

1. gain income from idle or excess inventory;
2. improve financial flexibility;
3. increase access to resources beyond ownership;
4. gain an influx of venture capital funding (Owyang, 2013, p. 6).

Gaining income from idle or excess inventory means that people can share things which they are not currently using or which they possess in excess, and gain money from it. Improved financial flexibility means that people can seek income by using/sharing the inventory they possess which would otherwise give no profit. Access to resources beyond ownership means that people can use/rent things that they cannot buy because of financial limitations. Influx of venture capital funding often occurs in collaborative economy because investors are often willing to finance rising startups. For example, sharing a chainsaw with a neighbor:

1. allows the owner to gain profit from the chainsaw which otherwise would be idle;
2. permits the owner to improve their financial flexibility by gaining additional income;
3. lets the renter use the chainsaw which would be too expensive to buy for one use.

As for 4) venture funding, people are often willing to invest money in sharing economy projects such as a car-sharing or bike-sharing businesses that provide a platform for common use of resources. These drivers are important because they give people financial motivation to participate in sharing economy.

Technological drivers include

1. social networking,
2. mobile gadgets and platforms,
3. payment systems (Owyang, 2013, p. 6).

Social networking allows people to communicate easily and, thus, to match up supply and demand fast. Mobile devices and platforms also allow for finding sharing services swiftly in any place. Finally, payment systems permit for easy and quick monetary transactions, which simplify sharing. For example, if one wishes to rideshare, they can either

1. look for companions in social networks (e.g., some Facebook groups) or
2. use mobile platforms such as Uber; they can 3) pay for the services using a credit card, which is useful if the payer and the receiver are not in the same place or if one lacks cash.

These drivers are important because they provide the technical means to participate in sharing economy: sharing resources is usually situational, so it would have been impossible without quick and effective communication.

Four Principles of the Sharing Economy

For the sharing economy to exist, four basic principles identified by Bostman and Rogers need to be met:

1. trust between strangers,
2. idling capacity,
3. critical mass,
4. belief in the commons” (as cited in Dillahunt & Malone, 2015, p. 2286).

Trust between strangers is important because without it, people will be unwilling to share their resources due to safety concerns. Idling capacity, that is, the potential of a resource that is not being used, is necessary for that resource to be available for sharing.

Critical mass means that there are enough shared resources to choose from, so consumers are able to satisfy their needs; it is also needed to show that the system is trustworthy by demonstrating that many people are willing to participate in it. Finally, belief in the commons is needed because it also allows one to trust particular individuals more (the first factor), which is necessary if they are to provide resources to be shared (Finley, 2013).

For example, to provide lodging via the means of sharing economy, one needs to

1. be able to trust a stranger who would share the apartment with the provider for some time,
2. to possess free space in the apartment, and, often,
3. to have trust in their community in general, which would allow them to perceive its particular members as trustworthy (allowing for trust between strangers). Furthermore, if one is to use lodging offered via the means of shared economy,
4. a certain critical mass of lodging needs to be offered in the sharing market, so that the individual could see that this is a real option and not some type of fraud, and so that they could find the lodging that they seek (Dillahunt & Malone, 2015).

These principles are important because, arguably, if they are not met, people would not have enough trust to participate in sharing economy (principles 1, 3, and 4), or they would lack the ability to provide shared resources (principle 3), or they would not be able to satisfy their needs (principle 3).

The Forms of the Sharing Economy

Ridesharing is a popular form of the sharing economy. Customers will request a driver for a predetermined trip through a mobile device application. An example of that is a company called Uber. This company does not own any cars. It is an intermediary between the customers and the drivers (Allen & Berg, 2014). Thus, people can meet each other on this platform and reach the destination they need together spending less.

Houses/apartment sharing involves hosts and travelers who are offering and looking for related services. Airbnb is a platform that can be used by these parties to find each other without complications (Allen & Berg, 2014). It allows individuals to utilize the idle space, provides cheaper housing for travellers and allows the hosts to get some money.

Crowd funding presupposes involvement of individual project creators and backers. For instance, if one wishes to start a project (for instance, to organize a festival), the can seek backers who are willing to provide funding for such a project. Kickstarter, for example, helps these parties to find each other (Allen & Berg, 2014). Thus, when funding, for example, a festival, backers can participate in the event when it takes place, whereas the organizers will get the finance they need to organize it.

The sharing economy can be maintained in the form of trading and reselling. For instance, such an online resource as eBay allows owners of goods they no longer need to sell them, so these goods are not simply thrown away or otherwise wasted, the (former) owners gain money, and the new owners (i.e., buyers) can buy what they require at cheaper cost. In this way, people save money and reuse the goods (Matzler, Veider, & Kathan, 2015). For example, a TV set that was bought by a person who no longer needs it can be resold and used by several other individuals.

Advantages and Disadvantages of the Sharing Economy

Considering mentioned information, sharing economy tends to have a positive influence on people’s lives. It provides extra income to the owners of idle resources by allowing others to use these resources while paying money to the owners. It creates new jobs, allowing the public to be involved in the operations as product providers and hiring them for organizations that operate as mediators. It causes cost reduction through the exchange of products and makes them easy to buy or provide.

Still, the sharing economy also has a range of disadvantages. It affects other industries adversely, as people receive an opportunity to find something more convenient and purchase the same products for a lower price. Moreover, safety and privacy issues are likely to occur as people need to interact with strangers, for instance, when providing lodging by sharing an apartment with stranger, or when ridesharing with a stranger who potentially might have some harmful intentions, etc.

Challenges

Apart from its benefits, sharing economy brings a number of challenges to consumers, providers of resources, and the mediators. The risks to both customers and providers have already been mentioned, and the legal safeguards against these risks may be weak. (For instance, when a consumer breaks a chainsaw, it may be difficult for the provider to get a compensation.) On the whole, because sharing economy is a new phenomenon, it is often not regulated legally; sometimes sharing economy platforms are even against the law. For example, it is known that Uber (a ridesharing platform) faced legal challenges due to its inability to guarantee safety to its consumers, e.g. that car owners drive carefully. Another concern is that state institutions might find it difficult to charge consumption taxes, and the total amount of collected consumption tax may decrease (EY, 2015).

These challenges are important because they may prevent sharing economy from developing (for instance, Uber is banned in Spain); on the other hand, they stimulate the adaptation of the existing institutions to the sharing economy, and also allow the sharing economy to develop and overcome its weaknesses (e.g., new laws which allow for effective regulation of ridesharing emerge, permitting for higher levels of consumer safety).

Conclusion

The sharing economy is a fairly new concept which describes a business model based on peer-to-peer sharing of resources. In this business model, a transaction is performed online on platforms such as websites or apps, created by sharing economy firms called intermediaries. Sharing economy is distinct from other economies as it is based on sharing of goods, services or information, rather than individual ownership.

The four principles of sharing economy are trust between strangers, idling capacity, critical mass, and belief in the commons” (as cited in Dillahunt & Malone, 2015, p. 2286). Sharing economy may take such forms, as ridesharing, crowd funding, houses/apartment sharing, etc. Although sharing economy provides more opportunities for product selection and reduction of expenditures, it does not typically imply individual ownership, which is not always convenient. In addition, this business model may affect some industries negatively. In spite of such challenges, as risks and the lack of safeguards, sharing economy is already popular among many consumers and businesses.

References

Allen, D. & Berg, C. (2014). The sharing economy. Melbourne, Australia: Institute of Public Affairs.

Böckmann, M. (2013). The Shared Economy: It is time to start caring about sharing; value creating factors in the shared economy. Web.

Dillahunt, T., & Malone, A. (2015). The promise of the sharing economy among disadvantaged communities. Web.

EY. (2015). The rise of the sharing economy: The Indian landscape. Web.

Finley, K. (2013). Trust in the sharing economy. Web.

Gansky, L., (2010). The mesh. London, UK: Penguin.

Matzler, K., Veider, W., & Kathan, V. (2015). Adapting to the sharing economy. MITSloan Management Review, 56(2), 71-78.

Owyang, J. (2013). The collaborative economy. Web.