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‘The advent of the collaborative economy, in combination with artificial intelligence, big data and 3D printing, makes something like a fourth industrial revolution’.^[1] However, the collaborative economy is more than an economic model, it is also a cultural and social phenomenon, embodying the rise of the individual against the institutions and the intermediaries. The appearance of the collaborative economy has been gestated for decades and has roots in technological, societal and economicfactors.

Why did the collaborative economy came about now?

At least three series of factors have led to the rapid development of the collaborative economy:

Technological: advances in digital technologies, such as the Internet of Things (IoT), 5G networks, cloud computing, data analytics and robotics; the extensive use of mobile devices, equipped with elaborate apps and real-time GPS-mapping; the development of reliable online payment methods/platforms; and the massive spread of social media and, with it, the culture of sharing (information, photos, position etc).

Societal: urbanisation provides the critical mass of supply and demand, while shared access to goods and services appears as a reasonable reaction to materialism and overconsumption and as a means of ‘connecting people’. ‘Servitization’, ie the phenomenon whereby goods and services are increasingly intertwined offering new, advanced ‘experiences’ finds a strong expression in the collaborative economy.

Economic: The global financial crisis and the rise of unemployment have created the need for flexibility and monetisation of idle resources; sharing absorbs idle capacity and collaborative platforms do just that, ie help sharing. Capacity may take the form of underused goods (eg an electric drill is being used 13 minutes per year, while remaining idle for the rest of the time), or spare time and skills.

Just what is the collaborative economy …

A first definitional issue, which becomes especially relevant in view of the increasing professionalization of people offering services through the platforms, is the use of the adjective ‘sharing’. Indeed, in view of the economic value gained by some platforms,^[2] the term ‘sharing’ has been characterised as a ‘“misnomer” employed to mask the essentially commercial nature of the activity on these platforms’ while ‘[i]t has become a well-worn truism that little, if any, actual sharing occurs in the “sharing economy”’.[3] Although a distinction of the profit/non-for-profit nature of the activity may be justified when discussing the kinds of rules to be adopted for each category of activities, at the definitional level it would be counter-intuitive to exclude all those activities which bear a true economic intent and value. Therefore, the term ‘collaborative’ economy is preferred to ‘sharing’ economy, while the latter is seen as a sub-total of the former.

Even on the above assumption, the definitions of the collaborative economy vary considerably, as some put more weight on the intermediation by the platforms, others on the facilitation of interactions between peers, while others on the lack of ownership transfer. Taking into account the definition given by the Commission in its 2016 EU Agenda for the Collaborative Economy,^[4] the term ‘collaborative economy’ shall encompass those stricto sensu collaborative economy platforms, which facilitate a) access as opposed to transfer of ownership and b) the conclusion of a transaction (contract) between two other parties (hence a tripartite relationship), c) which parties are mostly – but not exclusively –peers, regardless of whether these are (occasional) prosumers or (professional) service providers.

… and its main characteristics?

1. Multi-sided markets dominated by online platforms

The collaborative economy becomes a reality through the connecting role of online platforms. By definition, those operate in multi-sided markets, ie markets where ‘a) two or more groups of customers, b) who need each other in some way, c) but who cannot capture the value from their mutual attraction on their own; and d) rely on the catalyst (platform) to facilitate value creating transactions between them’;^[5] or, from an economic point of view, where ‘the platform can affect the volume of transactions by charging more to one side of the market and reducing the price paid by the other side by an equal amount’.^[6] Examples of two-sided markets are shopping malls, stock exchange markets and credit cards.

One of the core attributes of two-sided markets is that they produce network effects or externalities: utility and demand of users on one side of the market are (generally) positively linked to utility and demand of users on another side of the market, and it is for the platform to internalise these externalities, essentially by arbitrating the prices charged to each group of users, in order to achieve the most effective balance between interdependent groups of users.

This will allow the platform to have a critical mass of users in order to effectively perform its matching task; for the platform plays an intermediary role and creates value by connecting distinct groups of users and reducing transaction costs among those.

Matching is secured through the use of algorithms providing search rankings and recommendations tailored to the users’ preferences. In order to produce the most match-able results, improve users’ experience and reduce transaction costs, platforms proceed to the ‘profiling’ of each user on the basis of data collected, bought or else acquired, concerning the users’ preferences. Therefore, data, both in the form of personal data and in the form of big data is all essential for platforms.

2. Making possible peer to peer (P2P) transactions

While being open to professionals for the promotion of their goods and services, the collaborative economy has the distinct feature of making it possible for non-professionals to also have access to the marketplace and offer goods or services which would otherwise remain unexploited and would thus constitute ‘idle capacity’. These ‘producing consumers’ are also known as ‘prosumers’.

3. Where ownership transfer is replaced by accessibility

A core feature of the collaborative economy is that users rarely (if at all – it is a question of defining the collaborative economy at the first place) do they acquire ownership of any good; rather, it is the temporary enjoyment of such good or, more often, of a service that users of the collaborative economy are seeking. In this way expensive and luxury goods and services become affordable and a more effective use of recourses is made possible. In this sense, the collaborative economy represents an innovative complement to a production economy in the form of a use-based economy, hence participating in the ‘servitization’ of the economy.

4. Where self-regulation, through reputation ratings, is all important

The way that collaborative platforms convince complete strangers to trust one another, and share their cars, rooms, sofas and beds, is through reputation ratings. This peer-review system has been exceptionally useful in the collaborative economy, since it diminishes the inherent risks of dealing with the unknown and distant individual, bypasses the reputation mechanism of businesses, and increases trust among users.

Which market sectors?

Transportation: Uber, Lyft etc offer urban driving services (to the destination chosen by the user), while Blablacar is a ride-sharing platform (the user shares a trip to a destination where the driver was going anyway) for suburban trips. Turo and Getaround allow car owners to offer their vehicles for short-term car rentals, while Zimride connects people from the same school, university, company, etc who can share a ride to/from the same location.

Accommodation: Airbnb, Homeway, VRBO, Wimdu etc allow individuals to become entrepreneurs by offering part or all of their living space to their peers as short-term accommodation. Rates are determined by hosts (suppliers) and the platforms are charging a fee (on one or both sides of the market, see above the analysis about multi-sided markets) per transaction. At the same time, real ‘sharing’ platforms such as Couchsurfing or home-swap platforms, such as HomeExchange promote short-term accommodation at private individuals’ homes (or just couches), without payment for the accommodation per se, but for a minimal membership fee.

Freelance labour: The collaborative economy – also referred to as ‘gig economy’ – offers unemployed or underemployed people the opportunity to trade labour for pay. ‘Crowdworkers’ may engage in a myriad of tasks or services provided online, such as writing, designing logos or translating documents on platforms such as Fiverr, MechanicalTurk, Upwork and Freelancer; alternatively they may perform errands or tasks offline, on a local basis, such as dog sitting on DogVacay, assembling furniture on AskforTask or watering the neighbour’s lawn on Taskrabbit. At the same time, some ‘truly sharing’ platforms, such as Skillharbour, operate as ‘time banks’, by facilitating the exchange of services between peers in a non-monetary relation: individuals can pool and trade time and skills, bypassing money as a measure of value.

Finance: Collaborative platforms also engage in financial services, such as crowdfunding and fundraising, money lending, investing, virtual currencies, etc, the most popular among which is crowdfunding. Crowdfunding platforms (egKickstarter and Indiegogo) facilitate raising monetary contributions through a campaign with the objective of funding someone’s project, venture or idea. Crowdfunding has been used to fund both for-profit entrepreneurial ventures, artistic and creative projects and non-profit or community-oriented social projects.

Up and coming sectors: Fon and Open Garden allow peers to share wi-fi, while platforms such as Mosaic and SunShare connect individuals with solar contractors and providers in order to collaborate on solar installations within communities and Vandebron allows for consumers in the Netherlands to buy energy directly from independent small producers, such as farmers with wind turbines or solar panels. At the same time Heal matches patients with doctors performing on-demand house calls, Care connects families with caregivers providing adult and senior care, child care etc, Cohealo promotes sharing of medical equipment across health systems’ facilities, PatientsLikeMe connects patients who share their health experiences, Spuce provides telemedicine, Eaze facilitates the delivery of medical marijuana, Uber (UberHealth) occasionally delivers wellness packs and free nurse-administered flu shots.

Next week: Who does what in the Collaborative economy: legal qualifications of the parties in tripartite relationships?

Vassilis HATZOPOULOS is full Professor of EU Law and Policies at the Panteion University, Athens (Greece), visiting Professor at the College of Europe, Bruges (Belgium), honourary Asst. Professor at the University of Nottingham (UK), Attorney at law – member of the Athens Bar. A leading expert in EU law, he notably wrote the first reference book on collaborative economy, The Collaborative Economy and EU Law, Oxford, Hart, 2018

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[1] K Schwab, ‘The Fourth Industrial Revolution: What It Means and How to Respond’ Foreign Affairs (12 December 2015).

[2] In December 2015 Uber was valued at US$62.5 billion, while in November of the same year AirBnB was valued at US$25.5 billion; it is also worth noting that incumbent industries have heavily invested into ‘sharing’ platforms; hence egGeneral Motors has invested more than US$500 million on Uber’s competitor Lyft, and Expedia has taken over AirBnB’s competitor HomeAway for US$3.9 billion; see US Federal Trade Commission (FTC) Staff Report, ‘The “Sharing” Economy: Issues Facing Platforms, Participants and Regulators’ (2016) 12 available at http://www.ftc.gov/reports/sharing-economy-issues-facing-platforms-participants-regulators-federal-trade-commission.

[3] J Infranca, ‘Intermediary Institutions and the Sharing Economy’ (2016) 90 Tulane Law Review Online 29, 30.

[4] Communication from the Commission, ‘A European Agenda for the collaborative economy’ – COM(2016) 356 final

[5]Evans and Schmalenese, ‘The Antitrust Analysis of Multi-sided Platform Businesses’ (2012)7.

[6]Rochet and Tirole, ‘Two-Sided Markets: A Progress Report’ (2006) 648.