How Peer-to-Peer Businesses Give Consumers a Lyft

Published April 1, 2015

Over the past few years, innovative new services such as Airbnb and Uber have sprung up across the nation, creating what’s been termed the “sharing” economy or “peer-to-peer” economy. These services have endured varying levels of resistance from local and state governments, as lawmakers have applied 19th- or 20th-century modes of regulatory theory to 21st-century technologies.

Instead of fighting the future of the economy, policymakers should embrace the power of the peer-to-peer process.

For example, finding a place to sleep in a new city is now as easy as tapping a smartphone, thanks to Airbnb. Safely getting from point A to point B is now much easier, thanks to transportation network services such as Lyft and Uber. The list of new conveniences goes on and on.

These services, and many more, have one thing in common: They were created and smoothly function without government involvement. To use the example of ride-sharing services, drivers have the ability to check out how riders have treated drivers, based on feedback from those drivers. Likewise, riders can see how highly a driver has been rated by other riders.

By enabling both sides to rate their respective experiences, both parties’ feedback creates a self-regulating framework where people have more information about providers and consumers of services and thus are able to make better-informed decisions about the provision and use of services.

In addition to those less-tangible benefits, the peer-to-peer economy benefits consumers in measurable, material ways.

Studying the effects of Airbnb on consumer behavior, Boston University marketing professor Georgios Zervas collected data on hotel revenue and Airbnb use in Austin, Texas. Zervas found a correlation between increases in Airbnb’s popularity and decreases in hotel prices, as consumers replaced lower-tier hotel accommodations with Airbnb stays.

This pattern of substitution, Zervas writes, led him to conclude “a supply of inexpensive accommodations can increase travel and tourism spending overall, and thus the sharing economy could be a net producer of new jobs.”

Thus even consumers who do not use peer-to-peer economy services benefit from it, as incumbent firms reduce the prices of their goods and services to attract consumers away from their alternative competitors. Zervas writes, “affected hotels have responded by reducing prices, an impact that benefits all consumers, not just participants in the sharing economy.”

By cutting regulatory red tape and maximizing freedom of voluntary economic exchanges, local and state governments can empower consumers to take charge and receive the services they want in the manner they want.

People generally know what’s best for them, or at least they know better than government regulators. The peer-to-peer economy helps them get what they want, faster, cheaper and more efficiently. That makes for happier consumers and more efficient businesses. That’s an outcome everyone should embrace, including the policymakers entrusted with responsibility for fostering the best interests of both consumers and service providers.


[Originally published at the Chicago Tribune]