Published on 6 March 2019
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Understanding the sharing economy

The sharing economy can often mean different things for different people. For some it is a distinctive sector, for others an economic model; for some, although not all commentators, it should not be based around monetary transactions; for some the peer-to-peer element of a sharing economy platform is the obligatory feature.

Determining a clear definition of the sharing economy is important for understanding the digitalisation of the economy, which in turn is important for measuring economic growth and progress more accurately. If we can get a grasp of the size, scale and impact of digitalisation, we can more effectively observe its overall effect on the economy. We could also understand more about its distributional effects, contributing to the debate on increased prosperity. But to measure these things, we need to have clear what exactly we are measuring. It is on this basis that Diane Coyle and Shane O’Connor approached the challenge of defining a clear concept of the sharing economy in the research for the Economic Statistics Centre of Excellence.

Undertaking interviews with a sample of UK platforms, the researchers looked to draw out common and essential characteristics and features of sharing economy platforms to contribute to forming a sufficiently precise definition of the phenomenon. From the insights gained, they conclude that there are general features which do allow for a distinct definition of the sharing economy.

Certain characteristics related to “sharing” may immediately spring to mind, such as the use of some object jointly with others or experiencing something jointly. What turns these concepts into an organised economy is, firstly, viewing what is “traded” or shared as an asset, and secondly, the formation of structures built on human interrelations that allow for this trading (sharing) to take place. As commented by Geron in Forbes, “The sharing concept has created markets out of things that wouldn’t have been considered monetizable assets before.” Trust, as an institution, is vital to the functioning of economies, but turns out to be a particularly important force in the case of the sharing economy.[1]

While we might already have some idea of what role trust plays in exchange, in their book What’s Mine is Yours Botsman and Roo argue that “technology is reinventing old forms of trust.” Key to the phenomenon of the sharing economy has been pervasive internet access via mobile devices. The sharing economy may not, in fact, be all that innovative in some ways, even if it is in its forms of realisation. Despite making new use of the internet for the creation of digital platforms, conceptions around sharing certain things or experiences may be repetitions of common ways of life in the past. One of the founders of Airbnb commented that his grandfather was completely unsurprised by the idea while his parents were. This led him to observe that “we are not the modern invention, hotels are.”[2] His grandparents were of a generation were it was common to stay with friends or friends of friends. What is new about this old idea is the form; digitalisation enabling such platforms is the glue to the sharing economy as opposed to social capital more characteristic of past times including distinct forms of communication.

Peer-to-peer digital matching and greater utilisation of under-used assets or skills are further common features which the researchers find are necessarily characteristics of a sharing economy initiative. On the basis of these features, a clear-cut definition can be derived. These points, for example, are vital for distinguishing the sharing economy from overlapping terms such as ‘collaborative consumption’ or the ‘gig economy’.

The findings show that strong non-financial motivations are another prevalent feature of sharing economy platforms, in comparison to their conventional competitors, even though many are for-profit businesses. Of note is the fact that both suppliers and consumers linked to these platforms express such motivations as positive environmental impact, community and trust building as well as other sustainability considerations.

Mentioned above in the context of being an important catalyst for the purpose and rise of the sharing economy, trust affects the realm of the sharing economy in further ways; it was and remains critical to the sharing economy process and functioning. It is perhaps now manifested in novel ways such as reputation statistics, quality and standard checks and two-way rating schemes. The findings support that the reputation spread by word-of-mouth is also an important factor in platform success. Trust in the platform itself is important for success.

The sharing economy is developing and predictions foretell of its growing role in the overall economy, but its nature is evolving and maybe particularly because of this, the need to understand its makeup is pressing. The research sheds light on dynamics of this economy little touched upon so far, where public debate has focussed mostly on a few large and high profile platforms. The ecosystem is much richer than this, and increasingly so with a revealed strong interconnection between small and large platforms. If the predictions of growth are proven to be correct, it is worthwhile understanding the dynamics of the sharing economy, what it is and what it is not.

Professor Diane Coyle and Shane O’Connor’s working paper on the sharing economy is available online

[1] Rachel Botsman
[2] What’s mine is Yours

The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.

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