The car in front of you has four wheels and goes “beep.” For a certain fee, its driver will pick you up from where you are now and will shortly thereafter drop you off at the place you want to go. Twenty years ago, that car was an ordinary taxicab that you called on a landline. Now, it’s an Uber you summoned with an app on your smartphone. What’s the difference? In the world of regulation, everything.
We are now several years into the “sharing economy,” in which businesses launch and get big not by providing a service to customers, but by providing a piece of technology that individuals can use to sell services to each other. At least, that’s the idea. The most emblematic, most widely-used of the new world’s services are Uber, in which ordinary drivers volunteer to be your cab, and Airbnb, in which ordinary homeowners volunteer to let you rent their place when you travel instead of a hotel.
But of course, where one now idea thrives, other entrants follow. Hundreds of businesses — all of them nominally apps or websites — fit the same model, with more launching pitches of, “like Uber but for _____” every day. So now we sit, with hundreds of players entering the field, and nobody quite sure what, if anything, to do about it.
Enter the FTC. The regulatory agency yesterday held a full-day workshop on the nascent sharing economy, with heavy emphasis on “economy.” Speakers and panelists from industry, trade groups, academia, and the government held forth on their various answers to exactly that question: what, if anything, can consumer protection agencies do about this whole new line of business?
Everyone seems to have a thought on the matter. Writers who approach it from a social science perspective and wonder about generational effects. Finance-minded pages speculate about blockbuster IPOs. Consumer-issues reporters wonder about problems with customer service.
From the perspective of executives from companies like Airbnb and Uber, their innovative new businesses are simply connecting markets, innovating, meeting consumer needs, innovating, boosting entrepreneurship, innovating, and letting their signed-on vendors make a buck. They fear regulation could damage their business models and interfere with their rapid, lucrative growth.
From the perspective of incumbent businesses, there’s a fundamental issue of fairness at play. Hotels and taxis, for example, are very highly regulated industries at the local, state, and federal level. Checking the boxes, dotting the i’s, and crossing the t’s takes time and money — fees, taxes, and inspections are all involved. They have to operate within very specific parameters, and feel that exempting new entrants from the same regulatory burden gives the newbies an unfair advantage.
And from the perspective of regulators? Well, it’s a mess.
Existing regulation, as written, can be either painfully specific or painfully vague. As the businesses for which they were written evolve into something new, certain sections of the law may no longer apply… or they may. New questions arise daily: which things are like other things? Can you call Uber a taxi service if it behaves the same way on the streets? Or is a taxi only something with a hack medallion? And if so, should Uber be required to get those licenses, or should current cab drivers be exempted? Does the app change things? Do certain kinds of discrimination become more or less likely? If these are all private cars under private drivers, how does the ADA apply, and to whom?
It only gets more complicated from there. Even if only ride-hailing services, like Lyft and Uber, were at stake, it would still be a complicated, thorny knot of a problem. But it’s not just one sector: it’s all of them.
That, to put it mildly, is a challenge for an agency like the FTC.
At the workshop, representatives for Uber and Airbnb, as well as many of the economists on hand, all pointed to industry self-regulation as the best answer — at least, for now. The successful companies, several participants pointed out, all have mechanisms in place to enforce consumer trust and remove bad actors. eBay started doing it decades ago, and now with Uber and Airbnb in particular, mutual ratings are the key way of making everything tick. If a driver’s no good (or a passenger is too unruly), they’re going to find themselves booted out of the system entirely.
Self-regulation, speaker Arun Sundararajan explained, is not necessarily the same as an absence of regulation. In his remarks, as well as in an article he recently co-authored, Sundararajan calls the idea “delegated regulation.” A function — consumer and business protection — that used to be managed in the public sphere still exists, but instead is handed over to private actors, within the industry.
Self-regulation, however, has not exactly had a flawless history of protecting consumers or shared resources. Agencies like the FTC, therefore, are not exactly willing to write off entire sectors of the economy just yet. So what can they do?
Speaker Maurice Stucke argued that what’s most important right now isn’t necessarily figuring out what regulations to write but rather, what questions even to ask so that future regulations are possible. “What are the canaries in the coal mine?” he asked. “How do we even know they are canaries? Can we analyze whether something is a threat at all?”
The kind of companies under scrutiny don’t sell things: they sell data. Data about consumers, about sellers, about vendors, about places and times and people and things. They have data about the trips you’ve taken, the credit card you paid with, and the cities you’ve gone to. Data owned, not services rendered, is what makes a sharing economy company valuable on the marketplace.
To that end, Stucke suggested regulators should be thinking about ways that companies can use data unfairly. For example, data-driven mergers. If Google were to buy Uber, he hypothesized, that would be neither a vertical nor horizontal merger… but it could still put too much private data about individuals into the hands of one single company.
Stucke also raised other antitrust concerns, pointing out that none of the issues he mentioned were exactly imminent, as far as anyone knows, but that all of them could happen.
“The competition authority should ask, am I asking the right questions and do I have the tools that should this issue arise, can I then address it?” he asked. “Can I assess what the impact would be and act quickly to prevent the industry from tipping into a dominant firm’s favor?”
Ultimately, however, it seems nobody yet knows. Regulatory agencies are many things, but even the most optimistic of souls would be unlikely to put “nimble” and “quick” on that list. So for now, everyone just gets to keep on muddling through as best they can.
The FTC is accepting public comments on the matter through August 4.
