A relatively new aspect to the marketplaces of a number of cities worldwide is s

Question

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.

Explanation / Answer

Sharing economy can be defined as an economic system where assets are shared between private individuals for some amount of money or free of cost. Sharing economy is trying to open a whole new economic option for people looking to utilize their unused resources. Let's understand this as an example.

John owns a three house bedroom in New York City. John is currently pursuing his college degree and lives alone with his dog. One day John thought of better utilizing his two empty rooms and make some money out of it. So he logged in Airbnb and registered himself as a guest, he also provided all the details of the house with it.

Brad a British guy and Ram from India were on a world tour and New York would have been there next stop. They saw the ad posted by John and liked it. They were fascinated by the fact that they will get to live in a homely environment just like any other New Yorkers and get to experience the city up close. They immediately called John and confirmed everything. They were delighted to find that Airbnb was cheaper than other hotels in the area and John seems pretty good lad to hang out with. On the other hand, John was happy that he is putting his unused resources to some better use and making money out of it.

Let's take one more example, John also has a car and every Sunday he travels to New Jersey to meet his family living there. All the way he travels alone and comes back just like that, alone. One day he learned about a cool app which allows him to share his ride with other fellow travelers between New York and New Jersey. John applied immediately and found two interested people who were also ready to share some expenses. John has found another way to utilize his resources in a better way.

There are many people like John who have assets which are not utilized better and are just lying idle. Sharing economy allows people to rent those services or goods and make some money from it. From demand and supply point of view, sharing economy increases the supply significantly. Like in the first example say Brad and Ram hadn't found a nice hotel room because of peak tourist season or a costly room. But because of John, they got an easily available option. In sharing economy there are many people who would like to rent their unused resources increasing the supply but on the demand side, things are different. In the short run, the number of tourists or people who like to travel is not going to increase significantly. Increased supply and limited demand will drag the price down. Hotel rooms will be available cheaply and taxi fares will also come down. This is the reason these two companies are growing, they are in demand from people who want to rent their assets and people who want to use them.

These services are going to bring huge disruptions in the services of other hotels and taxi services as the supply increases and everybody can host a few guests this will bring the price level down and so will the profit. This is the reason why services like Airbnb and Uber are facing protests from other people involved in the same service. I completely disagree with people protesting because these services unlock huge assets value and open it to market. Increasing huge consumer surplus.

Two benefits of Airbnb and Uber sharing services are:

Two disadvantage of sharing economy

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