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The Dark Side of the Sharing Economy ... and How to Lighten It


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Improving the sharing economy will require addressing myriad problems
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Economic and
Business Dimensions
The Dark Side of
the Sharing Economy …
and How to Lighten It
Improving the sharing economy will require addressing myriad problems.
ists do not always respect the sensibil-
ities of long-term residents. Conflicts
over tenement buildings helped mo-
tivate the first U.S. zoning laws5 that
sharing now circumvents. In addi-
tion, short-term rentals create short-
ages of affordable long-term housing
when nightly rates exceed monthly
rentals. Passing that tipping point
can hurt individuals at lower income
levels11 even as it boosts income for
homeowners. It takes time to bal-
ance conflicting needs, but sharing is
growing quickly.
No Soup for You. In a famous epi-
sode of “Seinfeld,” one of the lead
characters was denied soup by a re-
nowned but humorous cook.a Shar-
ing biases online is as natural as
sharing cars and couches. But when
a See the No Soup for You episode summary:
ing economy we want to im-
prove it. But most pundits
are telling only half the tale:
Naysayers are too bombas-
tic and boosters too unrealistic. Im-
proving the sharing economy means
dealing realistically with its dark side.
To assure sharing will grow up, we
need to avoid market and regulatory
failures that allow parts of the market
to gain unfair advantage over others.
Regulatory arbitrage is not the right
answer. Instead, sharing must ulti-
mately create real consumer value.
It is not too early to begin. Shar-
ing is quickly spreading. People al-
ready have access to rooms (AirBnB,
Roomorama), tools (SnapGoods)
cars and bikes (RelayRides, Wheelz),
and ad hoc taxi services (Uber, Lyft).
These two-sided platforms offer many
advantages by unlocking the value
inherent in sharing spare resources
with people who want them.4 The size
of the sharing economy is estimated
at $26 billion.1,16 Internet mediaries
now match demand and supply in
real time on a global scale. The poten-
tial macroeconomic gains are colos-
sal, but problems abound.
The Sharing Economy’s Dark Side
The Hotel Zone. Transients and tour-
DOI:10.1145/2668893 Arvind Malhotra and Marshall Van Alstyne
It takes time to
balance conflicting
needs, but sharing
is growing quickly.
ing work (such as Mechanical Turk
or TaskRabbit) “on the cheap” strips
opportunity from the bottom of the
pyramid, as jobs move from tradi-
tional manufacturing and services to
micro-services.12 Micro-outsourcing
that pays for only the task at hand can
shed overhead but mortgage the fu-
ture by covering only marginal costs
and leaving nothing for new skills,
health care, or retirement. If informa-
tion goods are an indicator, marginal
costs approach zero, so even cover-
ing them might not pay much. Jaron
Lanier’s book Who Owns the Future?9
calls this issue a matter of dignity: “if
you have to sing for your supper for
every meal, you’re … one run of bad
luck from losing [everything].”d Going
freelance is hollow freedom when the
wage for labor is free.
d See
biases are unfounded and consumers
or producers bludgeon each other un-
fairly in social media, who will inter-
cede? Biases can mislead, ostracize,
shill unearned praise, and damn wor-
thy competitors. A recent study found
16% of Yelp reviews are not genuine.10
By posting unfounded complaints,
customers can punish providers for
their transgressions. In some cases,
providers will have to fight back to
save their reputations.b
Taxing the Taxi. Unlike licensed
taxi drivers, private citizens provid-
ing ride-share services do not always
purchase medallions. They also do
not take licensing exams, or neces-
sarily carry commercial insurance.
For these reasons and because they
are not required to honor all ride re-
b One restaurateur fights back against an unjus-
tified Yelp review:
quests, a German court banned Uber’s
basic service throughout the nation.3
Licensed taxi drivers are saddled with
greater costs, which hampers their
ability to compete with ride sharing.
Arguably, ride sharing is growing by
circumventing costs and regulations
that govern incumbent businesses.
Ride sharing can exploit loopholes to
avoid rules and taxes. When this oc-
curs, the sharing economy becomes
the skimming economy.
Shared Economies or Shared Serf-
dom. A commentator at The New York
Times concluded that what he earned
by ride sharing barely covered gas and
depreciation.c Peer-to-peer exchange
based on sharing ideas or perform-
c See comments on Sundararajan, A. “Trust-
ing the ‘Sharing Economy’ to Regulate Itself”
Economix Blog New York Times (Mar. 3, 2014);
Whose Ox Gets Shared? Sharing
creates a subtle tug-of-war between
the primary producer and secondary
sharer. Secondary sharing can be-
come tertiary taking. Consider the ex-
treme case of a Netflix subscriber who
pays $20 per month, rents three DVDs
from Netflix, and then rents each for
$1 per night to other individuals. The
subscriber makes $90 (1×3×30) each
month while paying substantially
less for an asset he or she never owns.
Similar to the way put and call op-
tions share the value of other people’s
stocks, sharing allows us to go long or
short on physical assets. It might be
economically efficient, but it can harm
the demand for Netflix and the people
who produced the movies. Broadcast-
ers sued the startup Aereo for leasing
a device that let individuals capture
broadcast TV signals to stream shows
to devices they (or others) own. The
suit reached the U.S. Supreme Court
and, on the basis of copyright in-
fringement, the U.S. Supreme Court
ruled against Aero.e The City of San
Francisco likewise shut down a sub-
versive sharing service. Counselors
issued a cease and desist order to pro-
ducers of a mobile app that rewarded
drivers for sharing news of their will-
ingness to vacate public parking. It
then auctioned off their spaces.f In-
sider sharing just became the latest
form of insider trading.
The Dark Side of the Moonlighting.
Last New Year’s Eve, an off-duty driv-
er for the ride-sharing service Uber
killed a pedestrian while hunting for
fares. Since the driver was a “contrac-
e Steel, E. “Stung by Supreme Court, Aero Suspends
Service;” New York Times (Jun. 25, 2014), A20.
f Coté, J. “SF Cracks Down on ‘Monkey Parking’
Mobile App” June 23, 2014;
tor,” the sharing service would not
compensate the victim’s family.g The
contract stipulates that the service is
a matching platform and “the com-
pany does not provide transportation
services, and … has no liability for ser-
vices ... provided by third parties.”h
Who then will bear the costs of such
disasters? Jaron Lanier says these new
business models enjoy profits while
offloading risk to others. When soci-
ety picks up the tab, these new busi-
ness models raise concerns. Maybe
they are no cause for celebration.
Lightening the Dark Side
Absorb Risks that Benefit the Ecosys-
tem. Shedding risk and never admit-
ting culpability is standard lawyers’
advice. In following this advice, Uber
did not indemnify its driver yet has
reversed itself dramatically expand-
ing coverage. Putting share-rides into
taxi-ride perspective, New York City
experienced 44 taxi-related fatalities
in 2009 alone.i
History informs us about the will-
ingness of new businesses to accept
risk. Banks originally opposed the
Fair Credit Reporting Act (FCRA),
complaining about the increased lia-
bility and responsibility for unauthor-
ized transactions. Banks argued that
FCRA would promote fraud, encour-
age people to be careless with credit
cards, and reduce bank willingness to
extend credit. Precisely the opposite
occurred. The FCRA passed in 1970,
with amendment 15 US § 1643 later
limiting consumer liability to $50 for
fraudulent credit card use. However,
banks ultimately learned that pro-
tecting customers is good business:
increased credit card use more than
offsets growth in fraud-related costs.
Most banks now do not even hold
consumers responsible for the $50. If
sharing moves in the same direction,
sharers and society will be protected.
Invest in Your Customers. As a
startup, Airbnb could not gain traction
with renters as long as people put up
low-quality listings and photos of their
g Diamicis, C. “Uber driver hits, kills 6 yr old
girl. Is ‘Not our problem’ still an appropriate
response?” (Jan. 2, 2014);
h See
i New York City Pedestrian Safety Study: Tech-
nical Supplement (Aug. 2010).
History informs
us about the
willingness of new
to accept risk.
Transactions on
This quarterly publication is a
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CACM_TACCESS_one-third_page_vertical:Layout 1 6/9/09 1:04 PM Page 1
Tax Fairly and Don’t Promote Arbi-
trage. The City of Amsterdam has be-
gun to support sharing economies.15
Hosts renting their homes to others
pay income and tourist taxes, and
must ensure neighbors stay neighbor-
ly. Private individuals do not require
liquor licenses or kitchen inspections
as do major hotel chains. Regulations
that lie between the individual and in-
dustrial levels in this fashion can be a
wiser way to handle tax arbitrage. In-
dividuals do pay reasonable taxes that
support the community but do not
pay at industrial levels.
Current laws that gouge one group
to benefit another also need reform.
If technology permits low-fee provid-
ers to substitute for high-fee ones,
simplifying and designing laws that
do not promote arbitrage is possibly a
better answer. When was the last time
your airport car rental cost less than
you expected? Sticker shock sets in
when cities impose head, gas, airport,
and other taxes on tourists. Taxi me-
dallions help regulate taxi services,
but also create cartels where medal-
lions offer investment-grade returns
to their respective cities.7 Taxes on
private cars used in shared services
might make sense because the roads
still require maintenance. However,
balance is essential. Internet-enabled
sharing does not mean “no taxes,” as
Amsterdam has shown.
Create a FICO of Reviews and
Fair Access of Resources
To a great extent, the viability of
shared services hinges on the quality
of review systems because people rely
on them to decide whether and what
to purchase. Authenticating the va-
lidity of reviews is critical to prevent
abuse. An independent agency might
help prevent glowing “sock puppet”
reviews or unfair criticisms. Certi-
fication might even deflate mutual
excess flattery. Credit scores and in-
formation have been monitored in a
similar fashion for many years by sev-
eral agencies, including FICO. Also
regulators must ensure public access
to public information. Sharing news
must not be used to make public re-
sources private. The sharing econo-
my requires that complete informa-
tion and trustworthy reputations be
available to all parties.
The problem is not whether to bury
or build the sharing economy: it is al-
ready on the ground. The gains are too
great to pass up because of misdeeds
on the part of a few self-serving actors.
The larger opportunity is to move for-
ward despite the disruption. In the
short run, platform firms should in-
demnify users and self-regulate the
health of their ecosystems. At the
same time, consumers should choose
sharing platforms based on short and
long-term gains as well as individual
and community benefits. Learning
and appropriate regulation for fair
reporting and fraud protection will be
central—although it will need a light
touch to encourage innovation while
still watching for problems. The task
is to share the pain and the wealth. If
this sharing happens, the wealth will
grow and endure.
1. Botsman, R. and Rogers, R. What’s Mine Is Yours: How
Collaborative Consumption Is Changing the Way We
Live. Collins, 2011.
2. Byers, J.W., Proserpio, D., and Zervas, G. The rise of
the sharing economy: Estimating the impact of Airbnb
on the hotel industry. Boston University School of
Management Research Paper (2013).
3. Eddy, M. German court bans Uber service nationwide.
New York Times Bits Blog (Sept., 2, 2014).
4. Eisenmann, T., Parker, G., and Van Alstyne, M.W.
Strategies for two-sided markets. Harvard Business
Review 84, 10 (2006), 92.
5. Erickson, A. The birth of zoning codes, a history.
The Atlantic (June 19, 2012);
6. Evans, D.S. Governing bad behavior by users of multi-
sided platforms. Berkeley Technology Law Journal 27,
2 (2012).
7. Keeley, L. NYC taxi medallions wheel in profits rivaling
S&P 500. Bloomberg (Aug. 6, 2010).
8. Knox, R. How Yelp can help disease detectives
track food poisoning. NPR (May 22, 2014); http://n.
9. Lanier, J. Who Owns the Future? Simon & Schuster,
10. Luca, M. and Zervas, G. Fake it till you make it:
Reputation, competition and Yelp review fraud (2013);
11. New York Times Editorial Board. The dark side of
the sharing economy. (Apr. 30, 2014); http://nyti.
12. Rifkin, J. The rise of the sharing economy. Los Angeles
Times (Apr. 6, 2014);
13. Schrage, M. Who do you want your customers to
become? Harvard Business Review Press, 2012.
14. Sundararajan, A. Trusting the ‘sharing economy’ to
regulate itself. Economix Blog, New York Times (Mar.
3, 2014),
15. Tam, D. Amsterdam officially approves new Airbnb
friendly laws. 2014;
16. The Economist. The rise of the sharing economy. (Mar.
9, 2013);
Arvind Malhotra (Arvind_Malhotra@kenan-flagler.unc.
edu) is a T.W. Lewis Scholar and Professor of Strategy
and Entrepreneurship at The University of North Carolina
Kenan-Flagler Business School, Chapel Hill, NC.
Marshall Van Alstyne ( is an associate
professor in the department of management information
systems at Boston University and a research scientist at
the MIT Center for Digital Business; Twitter: InfoEcon.
Copyright held by authors.
rooms. Improved listing quality dou-
bled revenues.j That led Airbnb to edu-
cate its users in how to improve their
listings.k Author Michael Schrage13
points out that investing in custom-
ers helps them create more value.
When they can create that value, the
ecosystem wins. Gary Swart, past CEO
of oDesk, had his company partner
with SkilledUP to grant access to thou-
sands of online courses because better-
trained freelancers charge more for
their work and deliver higher quality.
Community Policing and Self-Reg-
ulation. Platforms can be better than
governments at spotting stalkers,
running background checks on shar-
ing service providers, and responding
quickly to conflicts among members.
Platforms are closer to the action; and
they have an incentive to look after their
communities. That is how they make
money.6 Venture capitalist Nick Gross-
man says peer-sharing systems develop
scalable enforcement, like reputation
systems, that are more inclusive than
licensing regimes. Self-regulation can
work (For examples see The American
Medical Association and National As-
sociation of Realtors.14) Problems with
self-regulation arise from harm to non-
members, market power, and network
effects that encourage firms to engage
in anticompetitive behavior. But with
care, these problems can be avoided.
Moreover, sharing can also help gov-
ernment regulators. For example,
health inspectors are using Yelp rat-
ings to identify restaurants that may be
sources of food poisoning.8
j See
k See
The problem is
not whether
to bury or build
the sharing economy:
it is already on
the ground.
... lt is unlikely, however, that creating a better world reflects their-or their investors'-single or core purpose. Likewise, they provide business opportunities for microentrepreneurs and participate in each of their transactions in the form of a substantial commission (Malhotra and Van Alstyne 2014). Dorr et al. (2016) point out that the current appeal of the sharing economy may, in fact, root in a deeper, societal desire for a different way of life: natural, sustainable, independent, connected, to name just a few catchwords. ...
... Before the COVID-19 epidemic, Airbnb could host around 500 million visitors, with an average of 2 million visitors per night [3]. Although the great valuations and the quick expansion of the sharing economy, various Airbnb-related threats, and risks, such as some crimes and accidents including robbery, sexual assault, and homicide, persist [4]. Moreover, these risks have been exacerbated by the spread of the COVID-19 pandemic [5]. ...
... Before the COVID-19 epidemic, Airbnb could host around 500 million visitors, with an average of 2 million visitors per night [3]. Although the great valuations and the quick expansion of the sharing economy, various Airbnb-related threats, and risks, such as some crimes and accidents including robbery, sexual assault, and homicide, persist [4]. Moreover, these risks have been exacerbated by the spread of the COVID-19 pandemic [5]. ...
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This study examined the impacts of perceived Airbnb risks, i.e., performance, financial, physical, social, time, and psychological risks on tourists' intention to use Airbnb. The study also explored the moderating effect of the fear of COVID-19 on the relationship between perceived Airbnb risks and the tourist's intention to use Airbnb. The data was collected from 248 customers of Airbnb using a survey approach. The data were analyzed utilizing the Smart PLS V.4. The PLS-SEM results revealed that Airbnb (physical, psychological, time, performance, financial and social risks) had a significant negative effect on the intention to use Airbnb. On the other side, the fear of COVID-19 acted as a moderator between Airbnb's physical, psychological, and social risks and the intention to use Airbnb, indicating that customers tend to tolerate time and performance risks when having a high level of fear of COVID-19 and prefer to use Airbnb regardless of them. This shift in customer behavior towards customers' intention to use Airbnb in light of the fear of COVID-19 gives Airbnb an edge that should be exploited via remedying other risks. It was suggested that the Airbnb hosts' awareness of the importance of Airbnb in the context of tourism in Egypt should be enhanced. Additionally, a legislative framework should govern Airbnb transactions to secure tourists in dealing with Airbnb hosts. Professionalism in providing Airbnb services should also be adopted. Future studies in the context of the current subject could conduct multi-group analyses according to different types of Airbnb accommodation and use a larger sample size.
... Este modelo econômico emergente é facilitado por plataformas digitais capazes de conectar uma rede de atores sociais e econômicos que estariam, supostamente, em posições de poder equivalentes (Eckhartd et al., 2019). Contudo, o domínio das plataformas digitais por grandes corporações (venture capital companies) promove desequilíbrios na relação de poder entre os pares (Malhotra & Alstyne, 2014;DiNatale et al., 2018). Ao analisar as consequências -especialmente aquelas negativas -desses dispositivos digitais, observamos que elas não estão atreladas a plataforma digital, mas ao controle das corporações proprietárias dos dispositivos na (1) forma como a produção e circulação de bens é organizada, (2) no redirecionamento da estrutura sociotécnica para benefícios individuais e (3) na vigilância e controle dos espaços de poder. ...
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A economia do compartilhamento, em especial as plataformas digitais, tem ganhado relevância no debate acadêmico de marketing e consumo dado o seu impacto na transformação dos arranjos de mercado. Contudo, na esteira desse processo, observa-se consequências negativas derivadas dos desequilíbrios provocados pela concentração de poder nos proprietários das plataformas. Na busca por arranjos de mercados capazes de assegurar a distribuição de valor gerado de forma compartilhada e mitigar os seus desequilíbrios, perspectivas recentes têm recuperado a noção de cooperativismo para projetar modelos mais justos de plataformas digitais. Neste ensaio teórico, buscamos refletir e mapear a construção de novos arranjos de mercado em uma economia compartilhada e cooperativa. Para isso, reconhecemos o cooperativismo de plataforma como um modelo alternativo àquele controlado por grandes corporações. Finalmente, nós combinamos os princípios do cooperativismo e de governança distribuída para propor uma tipologia para as diferentes configurações dos arranjos de mercado vinculados a plataformas cooperativas.
Massive-scale peer-to-peer vacation accommodation has become one of the most relevant recent trends in the tourism industry. The phenomenon coincides in time with the emergence of the millennial generation alleged to influence a distinctive behavior. Grounded in the Social Exchange Theory, the study presents a comparative analysis of millennial residents’ and previous generations’ support for P2P vacation accommodations. The article explores differences in support for the new activity, in the perception of its impacts, and on how the residents back their support. A quantitative survey was conducted with a sample of 1,285 residents from Tenerife (Spain), a major international tourist destination with a large number of P2P vacation accommodations. Results reveal that millennial residents display more support for P2P vacation accommodations. However, it is not based on structural differences in how they build their support, rather on a greater perception of positive economic, socio-cultural, and environmental impacts than previous generations. Relevant tourism destination and DMO implications are derived.
A importância de se proceder à análise dos principais desafios jurídicos que a economia colaborativa coloca – pelas implicações que as mudanças de paradigma dos modelos de negócios e dos sujeitos envolvidos suscitam − é indiscutível, correspondendo à necessidade de se fomentar a segurança jurídica destas práticas, potenciadoras de crescimento económico e bem-estar social. O Centro de Investigação em Justiça e Governação (JusGov) constituiu uma equipa multidisciplinar que, além de juristas, integra investigadores de outras áreas, como a economia e a gestão, dos vários grupos do JusGov – embora com especial participação dos investigadores que integram o grupo E-TEC (Estado, Empresa e Tecnologia) – e de outras prestigiadas instituições nacionais e internacionais, para desenvolver um projeto neste domínio, com o objetivo de identificar os problemas jurídicos que a economia colaborativa suscita e avaliar se já existem soluções para aqueles, refletindo igualmente sobre a conveniência de serem introduzidas alterações ou se será mesmo necessário criar nova regulamentação. O resultado desta investigação é apresentado nesta obra, com o que se pretende fomentar a continuação do debate sobre este tema.
Conference Paper
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İçerisinde bulunduğumuz dijital çağda, internet ve bilgi teknolojilerinde yaşanan gelişmeler sosyal ve kültürel alanda olduğu kadar, ekonomi üzerinde önemli etkiler ortaya çıkarmıştır. Bu kapsamda ortaya çıkan paylaşım ekonomisi, sık kullanılmayan veya atıl durumda bulunan ürün ve hizmetlerin, ihtiyaç sahibi diğer bireylerle dijital platformlar aracılığıyla, mülkiyet hakkının devredilmesinden ziyade geçici süre kullanılarak paylaşılmasına imkân veren bir iş modelidir. Dünya çapında ve çeşitli sektörlerde hizmet sağlayan paylaşım ekonomisi uygulamalarının sayısı her geçen gün giderek artmaktadır. Bu çalışmada, kar amacı güden ve hizmet takasında paranın aracı olarak kullanıldığı paylaşım ekonomisi konaklama sektöründeki lider platformlarından biri olarak Airbnb (Airbed & Breakfast) ile ilgili geniş bir kavramsal çerçeve oluşturmaya odaklanılmış ve bu kapsamda Airbnb platformunun gelişimi, konaklama sektörü üzerindeki etkisi ve payı, Dünya üzerindeki uygulamaları güncel literatür çerçevesinde incelenerek, hem pazarlama alanyazınına hem de uygulamalarına katkıda bulunulmaya çalışılmıştır.
The COVID-19 pandemic had serious economic effects, forcing businesses to adjust their strategies to survive. The tourism sector was one of the most affected due to the imposed travel restrictions; both traditional units and people providing services to tourists through the sharing economy platforms had to adapt. The objective of this paper is to build a hedonic price model to identify the attributes that significantly influence the price of the room, using the WLS regression model. Despite the general negative trend, there were also hosts who considered that opening a new listing during these times may represent a business opportunity. Therefore, the focus of the article is on newly opened listings on the Airbnb platform during 2020. The approach used included the main categories of variables discussed previously in the literature: listing attributes, listing location, listing reputation, rental policies, and hosts characteristics/involvement. The maximum number of guests accepted in the property, the type of listing, and the availability of air conditioning (AC) and parking represent the main characteristics that influence the prices. Changes in travel behaviour due to increased health and safety concerns made hosts aware that guests are willing to pay more to stay in central locations or in places owned by Superhosts.KeywordsSharing economyPricing strategiesAirbnb
Problem definition: Early research has documented significant growth in ride-hailing services worldwide and allied benefits. However, growing evidence of their negative externalities is leading to significant policy scrutiny. Despite demonstrated socioeconomic benefits and consumer surplus worth billions of dollars, cities are choosing to curb these services in a bid to mitigate first order urban mobility problems. Existing studies on the congestion effects of ride-hailing are limited, report mixed evidence, and exclusively focus on the United States, where the supply consists primarily of part-time drivers. Methodology/results: We study how the absence of ride-hailing services affects congestion levels in three major cities in India, a market where most ride-hailing drivers participate full time. Using rich real-time traffic and route trajectory data from Google Maps, we show that in, all three cities, periods of ride-hailing unavailability due to driver strikes see a discernible drop in travel time. The effects are largest for the most congested regions during the busiest hours, which see 10.1%–14.8% reduction in travel times. Additionally, we provide suggestive evidence for some of the mechanisms behind the observed effects, including deadheading elimination, substitution with public transit, and opening up of shorter alternative routes. Managerial implications: These results suggest that despite their paltry modal share, ride-hailing vehicles are substituting more sustainable means of transport and are contributing significantly to congestion in the cities studied. The reported effect sizes quantify the maximum travel time gains that can be expected on curbing them. Funding: This work was supported by the Srini Raju Center for Information Technology and the Networked Economy at Indian School of Business. Supplemental Material: The online appendix is available at .
Chapter 5 reviews the case studies to decipher emerging themes, patterns, strategies and concerns that have developed within and between food resistance movements. It asks, what have food resistance movements achieved and what can be learnt from their experiences? Drawing on new social movement and transitions theories, it focuses on the food waste movement to examine trajectories of socio-environmental change over almost two decades. Food resistance movements often reach beyond awareness and behaviour change to consider pathways of formalisation, integration within planning and policy, maintenance through care and governance, failure, technological innovations and commercialisation. Opportunities for scaling ‘out’ and ‘up’ are examined through processes of diversification, hybridisation and replication. This chapter closes on possibilities for translocal movements and linkages between the Global North and South.KeywordsFood system transformationsTransitions studiesSocial movementsSocial changeInstitutionalisationIntegration into policy and planning
Disruptive innovation continues to transform markets, industries and expectations worldwide. That clever new Chinese social media feature can inspire startups and threaten incumbents in Boston, Berlin and/or Bangalore. New value can come from anywhere and everywhere. Customers and clients, not just rivals and competitors, now drive and determine disruption. My clients and classes live in this disruptive reality.
If you listed the blockbuster products and services that have redefined the global business landscape, you'd find that many of them tie together two distinct groups of users in a network. Case in point: The most important innovation in financial services since World War II is almost certainly the credit card, which links consumers and merchants. The list would also include newspapers, HMOs, and computer operating systems-all of which serve what economists call two-sided markets or networks. Newspapers,for instance, bring together subscribers and advertisers; HMOs link patients to a web of health care providers and vice versa; operating systems connect computer users and application developers. Two-sided networks differ from traditional value chains in a fundamental way. In the traditional system, value moves from left to right: To the left of the company is cost; to the right is revenue. In two-sided networks, cost and revenue are both to the left and to the right, because the "platform" has a distinct group of users on each side. The platform product or service incurs costs in serving both groups and can collect revenue from each, although one side is often subsidized. Because of what economists call "network effects," these platform products enjoy increasing returns to scale, which explains their extraordinary impact. Yet most firms still struggle to establish and sustain their platforms. Their failures are rooted in a common mistake: In creating strategies for two-sided networks, managers typically rely on assumptions and paradigms that apply to products without network effects. As a result, they make many decisions that are wholly inappropriate for the economics of their industries. In this article, the authors draw on recent theoretical work to guide executives negotiating the challenges of two-sided networks.
Airbnb is an online community marketplace facilitating short-term rentals ranging from shared accommodations to entire homes that has now contributed more than ten million worldwide bookings to the so-called sharing economy. Our work addresses a central question facing the hospitality industry: to what extent are Airbnb stays serving as substitutes for hotel stays, and what is the impact on the bottom line of affected hotels? Our focus is the state of Texas, where we identify Airbnb's impact by exploiting significant spatiotemporal variation in the patterns of adoption across city-level markets. Using a dataset we collected spanning all Airbnb listings in Texas and a decade-long panel of quarterly tax revenue for all Texas hotels, we develop a nuanced estimate of Airbnb's material impact on hotel revenues. Our baseline estimate is that a 1% increase in Airbnb listings in Texas results in a 0.05% decrease in quarterly hotel revenues, an estimate compounded by Airbnb's rapid growth. To further isolate Airbnb's impact, we employ hotel segments that consumers are less likely to substitute for Airbnb stays as additional control groups. We find that the impacts are distributed unevenly across the industry, with lower-end hotels and hotels not catering to business travelers being the most affected. Finally, by simulating various regulatory interventions informed by current events, such as limiting Airbnb hosts to a single listing, we find only a moderate mitigating impact on hotel revenues.
Consumer reviews are now part of everyday decision making. Yet the credibility of these reviews is fundamentally undermined when businesses commit review fraud, creating fake reviews for themselves or their competitors. We investigate the economic incentives to commit review fraud on the popular review platform Yelp, using two complementary approaches and data sets. We begin by analyzing restaurant reviews that are identified by Yelp’s filtering algorithm as suspicious, or fake—and treat these as a proxy for review fraud (an assumption we provide evidence for). We present four main findings. First, roughly 16% of restaurant reviews on Yelp are filtered. These reviews tend to be more extreme (favorable or unfavorable) than other reviews, and the prevalence of suspicious reviews has grown significantly over time. Second, a restaurant is more likely to commit review fraud when its reputation is weak, i.e., when it has few reviews or it has recently received bad reviews. Third, chain restaurants—which benefit less from Yelp—are also less likely to commit review fraud. Fourth, when restaurants face increased competition, they become more likely to receive unfavorable fake reviews. Using a separate data set, we analyze businesses that were caught soliciting fake reviews through a sting conducted by Yelp. These data support our main results and shed further light on the economic incentives behind a business’s decision to leave fake reviews. This paper was accepted by Lorin Hitt, information systems.
Multi-sided platforms such as exchanges, search engines, social networks and software platforms create value by assembling and serving communities of people and businesses. They generally come into being to solve a transaction problem that prevents agents from getting together to exchange value. An essential feature of these platforms is that they promote positive externalities between members of the community. But as with any community, there are numerous opportunities for people and businesses to create negative externalities, or engage in other bad behavior, that can reduce economic efficiency and, in the extreme, lead to the tragedy of the commons. Multi-sided platforms, acting selfishly to maximize their own profits, often develop governance mechanisms to reduce harmful behavior. They also often develop rules to manage many of the same kinds of problems that beset communities subject to public laws and regulations. They enforce these rules through the exercise of property rights and, most importantly, through the bouncer’s right to exclude agents from some quantum of the platform including prohibiting them from the platform entirely. Private control is likely to be more efficient than social control in dealing with negative externalities on platform communities because the platform owner can monitor bad behavior more closely and deal with this behavior more expeditiously than a public regulator. The courts and antitrust authorities should exercise caution in finding anticompetitive exclusion when that exclusion is conducted as part of a governance mechanism for dealing with bad behavior of some platform users that harm other users.
A. The birth of zoning codes, a history. The Atlantic
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Erickson, A. The birth of zoning codes, a history. The Atlantic (June 19, 2012);
Trusting the 'sharing economy' to regulate itself
  • A Sundararajan
Sundararajan, A. Trusting the 'sharing economy' to regulate itself. Economix Blog, New York Times (Mar. 3, 2014),
) is an associate professor in the department of management information systems at Boston University and a research scientist at the MIT Center for Digital Business
  • Marshall Van Alstyne
Marshall Van Alstyne ( is an associate professor in the department of management information systems at Boston University and a research scientist at the MIT Center for Digital Business; Twitter: InfoEcon. Copyright held by authors.
NYC taxi medallions wheel in profits rivaling S&P 500
  • L Keeley
  • Keeley L.
Keeley, L. NYC taxi medallions wheel in profits rivaling S&P 500. Bloomberg (Aug. 6, 2010).