Markets Wired

A Federal Trade Commission staff report released today provides an in-depth assessment of evolving business models that rely on internet and app-based “sharing economy” platforms used by millions of Americans. The report summarizes a June 2015 FTC public workshop and highlights a number of competitive benefits and potential consumer protection challenges posed by disruptive business models in markets such as for-hire-transportation and short-term lodging.

The report, The “Sharing” Economy: Issues Facing Platforms, Participants, and Regulators, details how buyers and sellers are increasingly using internet-connected devices – smartphones and tablets – to access a matchmaking platform that allows them to search for new services, secure a price point, and complete a transaction. It discusses several “trust mechanisms,” such as reputation rating systems or money-back guarantees, which help build trust between buyers and sellers, as well as providing confidence that a transaction will proceed as agreed online.

“This report provides fresh insights about ‘sharing economy’ platforms that continue to disrupt traditional industries,” said FTC Chairwoman Edith Ramirez. “It is important to allow competition and innovation to continue to flourish, while at the same time ensuring that consumers using these online and app-enabled platforms are adequately protected.”

As the report explains, through sharing economy platforms, small suppliers such as individuals or small businesses, can enter markets and access and serve broad groups of potential buyers. These sellers are often able to use assets they already own – such as their personal automobiles or a room in their homes – which can make the cost of entry much lower than it has been for traditional suppliers.

It also summarizes concerns expressed by state and local regulators and stakeholders that sharing economy platforms enable new entrants to evade regulations designed to protect consumers and promote public safety. In exploring the tension between the potential competitive benefits that sharing economy business models may provide and the potential consumer harms that they may pose, the report draws on the FTC’s expertise as both a competition and a consumer protection agency.

The report also considers how aspects of sharing economy business models, including new technologies and trust mechanisms, may reduce the need for regulation. Citing advocacy letters from FTC staff to four jurisdictions on proposed or existing regulatory measures designed to regulate certain sharing platforms, the report stresses that regulation should address particular problems, but avoid actions that “are likely to hinder competition and are either not necessary or broader than necessary to achieve legitimate consumer protection and other public policy goals.”

A range of stakeholders, including representatives from the sharing economy and traditional businesses, current and former regulators, and academics participated in the FTC workshop. The FTC also received and reviewed over 2,000 public comments related to the workshop.

The Commission vote approving the issuance of the report was 3-0.

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