Global Entrepreneurship and New Venture Creation ...

Global Entrepreneurship and New Venture Creation in the Sharing Economy Norhayati Zakaria University of Wollongong in Dubai, UAE Leena Ajit Kaushal Management Development Institute, India

A volume in the Advances in Business Strategy and Competitive Advantage (ABSCA) Book Series

Published in the United States of America by IGI Global Business Science Reference (an imprint of IGI Global) 701 E. Chocolate Avenue Hershey PA, USA 17033 Tel: 717-533-8845 Fax: 717-533-8661 E-mail: [email protected] Web site: http://www.igi-global.com Copyright © 2018 by IGI Global. All rights reserved. No part of this publication may be reproduced, stored or distributed in any form or by any means, electronic or mechanical, including photocopying, without written permission from the publisher. Product or company names used in this set are for identification purposes only. Inclusion of the names of the products or companies does not indicate a claim of ownership by IGI Global of the trademark or registered trademark. Library of Congress Cataloging-in-Publication Data Names: Norhayati Zakaria, 1969- editor. | Kaushal, Leena, 1977- editor. Title: Global entrepreneurship and new venture creation in the sharing economy / Norhayati Zakaria and Leena Kaushal, editors. Description: Hershey, PA : Business Science Reference, [2017] | Includes bibliographical references. Identifiers: LCCN 2017010752| ISBN 9781522528357 (h/c) | ISBN 9781522528364 (eISBN) Subjects: LCSH: New business enterprises. | Entrepreneurship. Classification: LCC HD62.5 .G62 2017 | DDC 658.1/1--dc23 LC record available at https://lccn.loc.gov/2017010752 This book is published in the IGI Global book series Advances in Business Strategy and Competitive Advantage (ABSCA) (ISSN: 2327-3429; eISSN: 2327-3437) British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library. All work contributed to this book is new, previously-unpublished material. The views expressed in this book are those of the authors, but not necessarily of the publisher. For electronic access to this publication, please contact: [email protected].

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Chapter 7

The Rise in the Sharing Economy: Indian Perspective Leena Ajit Kaushal Management Development Institute, India

ABSTRACT Peer to Peer sharing economy has tremendous potential for decentralized innovation and new ventures in a developing country like India but apart from self regulation there is need for a new regulatory framework to realise its full potential. The regulatory policy should concurrently enhance the key efficiencies of sharing platforms along with protecting consumers’ rights. Government should aim to secure the opportunities offered by these sharing platforms to optimise their operations and better utilisation of public resources. Thoughtful regulatory intervention can serve to encourage the development of new ideas and new ventures in the sharing economy.

INTRODUCTION The world is at an inflection point. Globally, economies are striving for frugal economics, environmental sustainability and community gains with a variety of enablers like technology, social networks, and cultural factors. The rise in population is leading to the depletion and scarcity of many natural resources across the globe. Rising urbanisation is also posing problems in terms of public services and community building. However, the millennial generation has made it clear through the use of digital technologies that they do not want to inhabit the world that is depleted in value. Digital technologies enable people to directly connect with each other in all possible meaningful ways so that they can use the idle and underutilised resources of others temporarily without permanently owning them. Technology has facilitated the step towards ‘asset light’ generation from ‘asset heavy’ generation which is termed as sharing economy or collaborative consumption (April,2013). This trend has stimulated immense innovation, created new marketplaces and redefined the nature of business. Most of us in today’s context relate sharing economy very well to UberPOOL, transportaDOI: 10.4018/978-1-5225-2835-7.ch007

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The Rise in the Sharing Economy

tion service provider and Airbnb, an accommodation service provider. These business models rely on sharing consumers’ assets that are lying unused or could be spared. Increased digitalisation along with internet and mobile phones have facilitated efficient sharing of goods, services and information on one end and effective internationalisation of firms due to reduced transaction cost on the other end (Fellander et al., 2015).

DEFINING THE SHARING ECONOMY Sharing economy has been often referred and used interchangeably by several authors as collaborative consumption (Botsman and Rogers, 2010), peer to peer economy (Henning-Tharu et al., 2007) accessbased consumption (Bardhi and Eckhardt, 2012), commercial sharing systems (Lamberton and Rose, 2012), connection consumption (Schor, 2015) and Mesh (Ganskey, 2010) among others. The term ‘collaborative consumption’ was popularized by Botsman and Rogers in their pioneering work What’s Mine is Yours (2010). According to their definition, collaborative consumption occurs when people participate in organized sharing, bartering, trading, renting and swapping to get the same pleasures of ownership with reduced personal cost and lower environmental impact. Bardhi and Eckhard (2012) defined sharing as ‘access-based consumption’ where the transaction in the market takes place without transferring the ownership. Meelen and Frenken (2015) also define sharing economy as granting temporary access to customers to use ones under- utilized assets in return for money. Belk (2014a) has rightly pointed that the phenomenon of sharing is as old as humankind; nevertheless the internet age has given rise to the phenomenon of collaborative consumption and sharing economy. He argues that “you are what you own but the internet has given you the opportunity to express your identity without ownership”. According to Belk (2014b) collaborative consumption is pseudo-sharing in nature because the sharing of goods results in temporary ownership in return to a fee or compensation unlike the true sharing where sharing does results in temporary ownership but without any compensation. Wosskow (2014) also opines that sharing economy as an online platform enables people to share access to assets, resources, time, and skills either for-profit or not-for-profit activities. Schor et al., (2016), Schor and Fitzmaurice (2015) and Codagnone and Martens (2016a) defines sharing economy as digitally connected economic activity that facilitates exchange among unknown capital consumers based on the technology, like recirculation of goods (eBay), utilization of durable assets (Uber, Airbnb), exchange of services (Task rabbit) and sharing of productive assets and building social connections (Eatwithme). Codagnone et al. (2016b) also believes that sharing economy platforms facilitate the matching of different groups of users and providers to enhance the scale and speed for traditional transactions such as selling, renting, lending, labour trade, and provision of services. According to PWC report (2015) the five key sharing sectors—travel, car sharing, finance, staffing, and music and video streaming are expected to increase their global revenues from $15 billion in 2015 to $335 billion by 2025 by shaking up the established traditional market. Consumers are eager for sharing-based economy and are willing to borrow goods, rent homes, or serve up micro-skills in exchange for money. Hamari et al. (2015) defines Collaborative consumption as a peer-to-peer-based activity of obtaining, giving, or sharing the access to goods and services, coordinated through community-based online services. Online platforms assist demand and supply match in a particular market by facilitating peer to peer (P2P) selling (eBay and Etsy), P2P sharing (Airbnb, Uber, TaskRabbit) and crowd sourcing (Mechanical Turks, Kickstarter, AngelList) (OECD, 2014). 114


P2P or sharing economy is a new kind of rental market where the owners can either choose to use their assets for personal consumption or occasionally rent them out in exchange for payment (Hortan and Zeckhauser, 2016). Airbnb is a prominent example of P2P rental market that enables individuals to rent out the spare bedroom or an apartment with the promise to expand access to goods, diversify individual consumption, increase asset utilization and offer income to owners (Botsman and Rogers, 2011;Sundararajan, 2013; Edelman and Geradin, 2015).

KEY INGREDIENTS OF TRULY COLLABORATIVE- SHARING ECONOMY According to Botsman (2015) the terms “sharing economy”, “peer economy” “collaborative economy”, “on-demand economy”, “collaborative consumption” are often being used interchangeably, though they are quite different from each other in their basic relevance. The term sharing economy is widely used for most of the new start-ups that rely on digital technology to provide a platform to match buyers with sellers by avoiding the middlemen. There are several platforms or digital apps that are classified as sharing economy without even involving any sharing of the good or service. The platform or apps such as Washio or Deskbeers provides the user an instant access to clean shirt or a keg of beer but are essentially different from blabla car, Olashare, UberPOOL or relayRides which are modelled around sharing of underutilised assets. On the other hand, Pizza Hut, Uber and Amazon are purely ‘on-demand’ driven mobile apps that directly match consumers demand with the supplier to facilitate immediate delivery of goods and services, hence could not be termed as sharing economy. Racheal Botsman (2015) defined collaborative Economy as an “economic system of decentralized networks and marketplaces that unlocks the value of underused assets by matching needs through bypassing traditional middlemen” whereas Collaborative Consumption on the other hand deals with “the reinvention of traditional market behaviours—renting, lending, swapping, sharing, bartering, gifting— through technology, taking place in ways and on a scale with the help of internet”. According to her, an economic system based on sharing of underused assets or services, with or without payment directly from individuals falls under the purview of sharing economy and includes platforms such as Airbnb, BlaBlaCar, RelayRides etc. It is really important to have a clear understanding of sharing economy concept and the guidelines of Botsman gives a comprehensible picture. Botsman (2015) precisely identified the five key ingredients of truly collaborative, sharing-driven companies are as follows: • • • •

“The core business idea involves unlocking the value of unused or under-utilized assets (“idling capacity”) whether it’s for monetary or non-monetary benefits. The company should have a clear values-driven mission and be built on meaningful principles including transparency, humanness, and authenticity that inform short and long-term strategic decisions. The providers on the supply-side should be valued, respected, and empowered and the companies committed to making the lives of these providers economically and socially better. The customers on the demand side of the platforms should benefit from the ability to get goods and services in more efficient ways that mean they pay for access instead of ownership.

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•

The business should be built on distributed marketplaces or decentralized networks that create a sense of belonging, collective accountability and mutual benefit through the community they build”

Uber and Lyft are viewed as the most popular ride –sharing platforms globally, thought they do not meaningfully share rides. Uber introduced UberPOOL in December 2015, which allows the passenger to share ride and split the cost of trip with another passenger who is also heading in the same direction which in real sense is a ride sharing platform.

Platform Business Model The current sharing economy initiatives are operating on platform model. Multi-sided platform markets are becoming an increasingly important part of the economy therefore, it becomes imperative to have a basic understanding of these digital platforms. Rochet and Tirole (2006) in their pioneering work introduced the concept of two-sided platforms and proposed the pricing structure as the key to the volume of transactions. According to Evans (2003) and Hagiu & Wright (2015) multi-sided platforms coordinate the demand of distinct groups of customers. Dating clubs facilitate the meeting of men and women; yellow pages facilitate buyers and sellers to find each other; and computer operating system vendors provide software that application developers can use for the execution of application programs. Platform thus generates social surplus by coordinating of demand between different members group (Rochet and Tirole, 2002; Armstrong, 2002; Eisenmann et al., 2008). Sharing economy too rely on these digital platforms for its operations but for the platforms to be classified as sharing platform it must essentially facilitate a meaningful sharing transaction. Schmalensee and Evans (2007) classified two-sided platforms into four different types. The first is the advertising supported media platform that creates indirect network effect between the advertisers and the viewers. Web portals like yahoo and Google fall in this category where the revenue is generated from the advertisers. Second is the transaction platform for payments provided by MasterCard and Visa that brings both buyers (cardholders) and sellers together. Third is the software platform like personal computers, video games etc that brings software developers and users together and generally makes revenue from the user’s side. Fourth are the exchange platforms which facilitate buyers and sellers to search for feasible contract and maximise profit. Sharing platforms generally fall under this category, as it allows people to share property, resources, time and skills across online platforms. It facilities earning by renting ones under-utilised or spare asset to the other party, who can use expensive assets, such as cars etc without even owing them. Schor (2014) also opines that sharing economy platforms create ‘markets in sharing’ by facilitating exchanges and creating revenue.

Business Model of a Sharing Economy The sharing economy maximises the utility of assets by exploiting its social, economic and environmental value through renting, swapping, lending or bartering in P2P, Consumer-to-Consumer (C2C), Businessto-business or Business-to-Consumer (B2C) modes. (April, 2013). B2C models are among the earliest forms of e-commerce where businesses sell goods or services to individuals acting outside the scope of their profession. B2C e-commerce shortens the supply chains by eliminating the need for several wholesalers, distributors, retailers, and other intermediaries that were 116


traditionally involved in trading tangible goods. B2C businesses require high investment in logistics, advertising and customer care but it reduces transaction costs especially the search costs by increasing consumers’ access to information. The e-commerce transactions in which a business sells products or services to another business is called Business-business or B2B model. B2C or B2B platforms are fully regulated by existing legislation and raise no new regulatory challenges irrespective of their size and degree of innovation (Cologne 2016b). The first generation of online platforms like eBay created market places for products. EBay started operations in 1995 as an online auctioneer and was the pioneer to combine the search, review and transaction tools together. The second generation of online businesses are the social media platforms that enable billions to communicate and share content for e.g. Facebook and Twitter. The third generation of online platforms, the P2P service trade platforms emerged in late 2000 with the advent of smart phones and include Uber and Airbnb (Minifie and Wiltshire, 2016). P2P platforms help in connecting strangers to do business (Lee and Kirlik, 2013). They improve the existing market and create new ones by facilitating easy match and price for millions of buyers and sellers. These platforms pre-screen the suppliers and provide rating and payment system to safely conduct the business. Platforms also aid people in assessing under-used assets and boost the sharing economy. Hence, P2P platforms increase income or productivity whether used for sharing or e-commerce. P2P sharing transactions are becoming more and more common these days. According to Welsum (2016) there has been a shift in the previous view of ownership of assets towards a ‘temporary access right’ to a product. The dynamic model of sharing economy is based on the principle of sharing underutilised assets where the two-sided market enables P2P consumption (Erving, 2014). P2P platforms help individual consumers to sell or rent their assets such as residential property, cars, motorcycles, etc. by publishing information on the website and facilitating transactions. These businesses may or may not charge the consumer for these services, depending on their revenue model (OECD, 2014). According to Einav et al. (2015) P2P platforms minimize transaction costs for users i.e. search and deliberation and optimise the use of information to match the two sides, amid heterogeneity in supply and consumer preferences. Differences in tastes and seller costs create a fair degree of heterogeneity for room-rent service provider, Airbnb. Airbnb is designed in a decentralised manner enabling substantial interaction between hosts and guests, whereas, the centralised designing of UberPOOL responds well to users’ heterogeneity. The websites of Airbnb Company allows people to register their living spaces for rent and makes it convenient for users to communicate prior to making the final payments resulting in relationships building among people. UberPOOL aims at matching the driver and the rider in real time, especially in peak hours. The specification of cars and drivers are probably less important than getting a ride at the right time which has led to a much centralised design and high level of control over the key terms of the interaction. The monetised car polling platforms like UberPOOL, Blablacar etc have emerged as one of the prominent examples of sharing economy that have changed the conventional transport market. Carpooling has always been a way of sharing both the cost of commuting and leveraging an expensive private automobile which sits idle more than 90 percent of the time. So the same concept, which is now technologically assisted, is applied by these on-line platforms which results in saving cost, convenience and environmental benefits (Rubicon, 2015). The non-monetised model, Couchsurfing in US, has more than 5 million members across the globe. In this model the money is not exchanged directly rather the guests are expected to host the fellow guests in future (Botsman and Rogers, 2010).

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Benkler (2004) identified ‘lumpiness’ and ‘technology’ as two essentials of sharing economy. According to Benkler carpooling is an example of large-scale sharing of private goods which are ‘lumpy’ goods, i.e., they have to be purchased in units that exceed the buyer’s immediate need. Second is ‘technology’ which includes the combination of big data analytics, low-cost cloud storage, prevalence of social media and widespread use of mobile devices that has made operation possible for all sharing economy companies like airbnb, UberPOOL, blabla car etc. The sharing economy enables individual providers to do business directly with customers such as renting a room or availing a car service. The market place model avoids some of the biggest expense on inventory, fixed assets and labour costs unlike the traditional companies. UberPOOL doesn’t own a fleet of cars or hire drivers whereas Airbnb doesn’t own hotels or employ hospitality staff rather they earn revenue from the fee they charge people to use its platforms. The fee charged is generally low and competitive to encourage more and more providers and consumers to use the platform. The good experience of the users is the key to scale up businesses compared to their traditional competitors. Networking is the most integral part of sharing economy, because a P2P service becomes valuable only by attracting more users and increased usage. Internet business thus relies on the network effect for its success which includes Internet search engines to social media. The network effect also results in monopolies, as the companies with first-movers advantage often attract many users and become so valuable that competitors really struggle to attract customers to their networks. Once a network has reached critical mass, it becomes extremely difficult for other players to capture substantial market share, apart from government intervention. Airbnb being a front runner in home-rental service has literally achieved that status in the global markets and has also captured the providers i.e., homeowners by the virtue of their genuine on-line review systems (Rubicon, 2015).

Sharing Economy Ecosystem Sharing economy being a socio-economic ecosystem entails sharing of human and physical goods. P2P platforms are connecting suppliers and buyers to exchange or rent goods and services and to overcome large transaction costs (Rauch and Schleicher, 2015). Sharing economy has encouraged micro-entrepreneurs and facilitated creation of new markets to generate income by renting assets. The three crucial stakeholders of sharing economy ecosystem are consumers, on-demand technology platforms and suppliers. The effectual interaction amongst them enables efficient utilisation of resources where the consumers on one hand benefit from lower prices, convenience and availability of numerous options and on the other hand, on-demand technology providers and suppliers benefit from the better utilisation of infrastructure, easy access to consumers and more business opportunities. Technology equipped sharing economy paves way for substantial economic, social and environmental benefits by reducing transaction costs, environmental impacts and conserving resources. Sharing economy concept in India popularised with the advent of on-demand transportation platforms supported by increased smart phone penetration and consumers’ willingness to experiment with new things (E&Y, 2015). The mobile subscribers in India have increased from 261 million in 2007-2008 to 910 million in 2013-2014. The rural internet users are also accounting for 58 percent growth annually. The smart phone users are expected to grow at a cumulative aggregate growth rate (CAGR) of 91 percent from 2012 through 2016, from 29 million users to 382 million users. Likewise, the number of 3G subscribers is also expected to grow at a CAGR of 84 percent, from 23 million to 266 million, during the same period (PWC, 2015). 118


Table 1. Sharing Economy Ecosystem (E&Y, 2015) Consumers

Drivers

Benefits

Aggregators/Marketplaces

Suppliers

Rising mobile adoption

Quick market penetration and higher revenues

Better resource utilisation

High Internet penetration

High speed internet availability

Expended consumer reach and faster go-to market

Growth in digital platforms

Current inefficiencies in services

On-demand services

Increased inefficiencies

Increased business due to wider market reach

Convenience

Brand creation

Digital literacy

Lower prices

Better supplier prices

Social mobility

Shared experiences

Lower capital intensity

Skill development

Personalised product & services

Brand creation

Choice of multiple options Challenges

Trust & safety standards

Streamlining operations

Insurance & security of assets

Consistent Service experience

Regulatory considerations

Infrastructural challenges

Management of unconventional workforce

Consistent and quality service experience

Delivering consistent service quality

Economics of Sharing Economy Sharing platforms have forced the relevant stakeholders to re-evaluate their business models and change the way of conducting businesses in certain industries such as travel and transportation, accommodation and healthcare. The emergence of sharing economy has resulted in improving resource utilisation, convenience to the consumer, employment generation and environmental benefits. Global Sharing economy is expected to grow at a CAGR of 139.4 percent to touch $115 billion by 2016 compared to $3.5 billion in 2012 (Mahajan, 2015). According to (Gansky, 2010) the main drivers of sharing economy are societal, population density, urbanisation and the desire for community interactions. In several countries where vehicles, drill, lawnmovers account for 20-30 percent of the household expenditure, sharing platforms could be quite useful in improving the utilisation of these sharable goods and reducing the consumers overall expenditure. In India, the personal asset ownership of car is relatively lower with 13 cars per 1000 person compared to 450 cars per 1,000 persons in the USA, Japan and Europe. Owning a car is not always about necessity but often aspirational and a status symbol. Several studies report that one percent rise in per capita income leads to 1.7 percent rise in car ownership (TERI, 2006). Hence with the rise in income, a person with one car tends to buy a second or a third car, which is well reflected by the car dependent growth route in developed countries. Different estimates show that the number of cars in India will increase to about 35 cars per 1,000 populations by 2025 leading to severe repercussions for energy security, air pollution, parking congestions and road safety issues (TERI, 2014, Ghate and Sundar, 2013). In “The Nature of the Firm”, Coase (1937) gave the concept of transaction costs. According to him firm starts business outside the market frame to reduce transaction costs. Transaction costs include ‘search

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and information costs, bargaining costs, and policing and enforcement costs’. If such costs are reduced, transaction costs will be minimised. Sharing and collaborative business platforms that emphasise on the re-use of assets rather than absolute ownership have significantly minimised the transaction cost related to the search of an appropriate transaction counterpart. Sharing of assets such as car for personal transportation is economically and environmentally very convenient for individuals. The platform like OYO or Airbnb provides an easy and cost effective solution to rent a vacation space. Cohealo, a technology company headquartered in Boston USA, helps health systems share medical equipment across facilities leading to optimization of spending, accelerating cash flow and improving access to care. Hence, on the macroeconomic level, sharing economy leads to efficient use of resources and a sustainable way to consume goods and services (Mahidhar et al., 2013). Lower communication cost results in wider distribution of information. UberPOOL, Ola Share and Blablacar are cost efficient ride-sharing services provided through mass-produced smart phones by eliminating dispatchers and specialised equipments like credit card processors etc. The rider is able to see the drivers face, the license number plate of the vehicle and can track the vehicle’s position continuously through GPS based updates. While looking for a rented accommodation, OYO or Airbnb gives tremendous options to choose from, within the budget and enforce the agreement for rent online resulting in a transparent mutually beneficial trade at lower cost. These service platforms bring the entire transaction, including search, printing, payment and evaluation on the platform, reducing the transaction cost by matching the customer and the service provider (Edelman and Geradin, 2015). Dynamic pricing is another attribute of sharing economy. Markets coordinate knowledge to match supply and demand. The ride-sharing platforms like UberPOOL and Ola Share practice dynamic pricing or surge pricing to maximise supply and ensure the availability of service providers to meet consumers demand. They charge peak time variable fares determined by an algorithm, which evaluate multiple factors to even out demand and supply and quote a rate that incentivises the cab drivers to provide services at the time when no one else is willing to do so. Airbnb, the global accommodation aggregators also use dynamic pricing to provide price recommendations to the host based on location, likeness and seasonality pattern of booking behaviour (E&Y, 2015; Gurley, 2014).

TRUST AND REPUTATION IN THE SHARING ECONOMY Trust and reputation are the two crucial elements of the sharing economy. Trust enables frictionless operation of collaborative and sharing economy. The trust and faith of people develops overtime through repeated interactions, experiences, observations and is reflected in the form of reputation. The feeling of trust is based on consumers’ personal assessments of many factors including inter-personal, relational, organizational, market, and societal (Hamlin,2011). Asymmetric information and economic risks are the major threats to P2P marketplaces because the transaction takes place between strangers. To overcome these threats the businesses have developed reputation mechanisms to encourage trust among traders (Resnick and Zeckhauser, 2002). The reputation is based on the judgments made by customers through the various web-reputation systems or online reviews. However, the reliability of these reputational rating has been a constant subject of debate ever since the rise of sharing economy. Ratings on one hand ease out information asymmetry and being self-regulative in nature may discount the requirement of regulatory intervention (Allen and Berg, 2014; Koopman, et al., 2014; Thierer, et al., 2015) but, on the other hand they are also criticised for not being fully reliable. 120


Avery (1999) and Miller et al., (2009) rightly argued that it is highly unlikely to get an accurate rating of a public good. The customer might not always leave a rating or provide an accurate review fearing retaliation or intentional collusive behaviour by customers (Codagnone and Martens, 2016). Nevertheless, facilitating trust among parties is far more crucial to the operation in sharing economy than it is in earlier types of P2P platforms (Allen, 2005; Wang and Vassileva, 2007). The growth of sharing economy depends on fostering trust amongst the customers though the consumers today are more inclined towards convenience and affordability compare to building trust or loyalty with the providers. The authentication of the service provider is more challenging in P2P sharing model compared to B2C model because anyone can engage in sharing economy services without proper authentification. There is need for consistent high quality service. Lack of transparent regulations might result in asymmetric information during transactions, i.e., sellers not disclosing all the relevant details about the commodity. There is also a need for proper grievance redressal process for the customers (E&Y,2015). Trust and reputation are closely related terms in e-commerce though not identical (Wang and Vassileva, 2007). In P2P model reputation is gauged by the numerical review scores of experienced customers who interacted with the seller whereas trust is a subjective feeling about the trustee’s behaviour based on the implicit or explicit promise. Both trust and reputation are an integral part of online P2P transactions because both the parties engaged in monetary transactions do not know each other (Ponte et al., 2015)

LANDSCAPE OF SHARING ECONOMY IN INDIA Indian landscape shows high adoption of sharing economy in transportation and hospitality though yet in nascent stage. The business model of P2P accommodation in the hospitality sector is to connect the customer with the hotel owner by listing them as the providers on the official website and charging commissions for the same. Airbnb and OYO rooms are known online rent-service providers that allow people to rent or find vacation home for a processing fee. Airbnb is the poster child of collaborative consumption or peer economy sector (Forbes, 2016). ‘OYO rooms’, founded by Ritesh Agarwal in November 2015 is headquartered in Gurgaon, India. According to Ritesh, OYO has not imitated Airbnb model as apart from facilitating affordable accommodation search it also pledges to provide quality experience through standardisation on 30 measures including free wi-fi, breakfast, clean bed sheets, toiletries etc. OYO rooms support asset owners by providing quality standardized supplies and service training (Rai, 2015). OYO rooms currently operate in 200 Indian cities and in Malaysia. ‘Airbnb’, founded by Nathan Blecharczyk, Joe Gebbia and Brian Chesky in August 2008 is headquartered in San Francisco, US. In 2007, Airbnb founders came up with an idea of renting out free space in their apartment along with morning breakfast to the guests. Since the inception, Airbnb has been operating as an online platform connecting hosts, who wish to rent out places, to the guests seeking to rent such places. In 2015, Airbnb accounted for 1,000,000 listings in 34,000 cities and 190 countries. Airbnb has acquired several of its competitors and has surpassed the InterContinental Hotels Group and Hilton Worldwide as the world’s largest room service provider (Hansen et al., 2016). Ola was founded as an online cab aggregator in 2010 by Bhavish Agarwal and Ankit Bhatia in Mumbai. By 2014, Ola has expanded its network with 2,00,000 cars in 85 cities. According to the Wall Street Journal, Ola in September 2015 was valued at $5 billion, nearly twice more than its previous valuation,

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pushing it up on Fortune’s Unicorn List of billion-dollar start-ups. It’s been righty said that Americans know Uber and perhaps Lyft, Europeans know Gett but in India, Ola is king. Ola was originally an on-demand service provider that provided a platform to match cab drivers to the customers, until it introduced ‘Ola Share’, a ‘ride-sharing’ service in October 2015. Ola Share, an app-based service allows the rider to book a ride and share it with co-passengers heading in the same direction. It is a group service where all riders choose the group they ride with, ensuring safety and security for all. It has become quite popular among the travellers and has resulted in reducing the number of vehicles on the road, traffic congestion and pollution. Sharing rides provides the luxury of a cab at significantly reduced costs, is an eco-friendly and pocket friendly proposition. Ola Share is available in 10 Indian cities, including the major metros Delhi, Hyderabad, Chennai, Mumbai, Bangalore and Kolkata at very effective rates. The Indian government departments and Public Sector Units (PSUs) are also looking forward to the popular pocket friendly cab operators like Ola and Uber for transportation. These aggregators have already listed themselves on the government e-marketplace (GeM) to offer taxi services at special rates. Ola is also planning to offer its corporate service to PSUs. Uber, a US-based online transportation network company, founded in 2009 has surpassed the $68 billion valuation mark in December 2015. As of December 2016, Uber service is available in over 80 countries including India. Uber, on-demand service provider neither own cars nor employ drivers. It claims to be a marketplace where the drivers are independent agents who interact with the customers through its technology platform. In August 2014, Uber launched ‘UberPOOL’, a carpooling service which provided opportunities for the growth of sharing economy. UberPOOL allows passengers to share ride as well as cost with someone else nearby. The platform will match the rider with another rider taking a similar route and each pay only for portion of the trip. It facilitates economic exchanges by reducing the search and transaction costs for both drivers and passengers. The platform manages a network of drivers and passengers through apps and provides real-time ridesharing options (Hansen et al., 2016). Ola claims to hold 80 percent market share of the $ 6 billion Indian cab services market, followed by 12 percent share by Meru and at 4 percent by Uber and others. According to industry estimates, the Indian cab market is growing at 25-30 percent year-on-year and Ola is keeping pace with it by adding 1,500 cabs every day to its current fleet with the target to reach one million taxis mark and to cross $1 billion in revenues by 2015-16. UberPOOL in Delhi and Bangalore claims 25 percent of the total city trips with more than 50,000 riders opting for sharing their trip via UberPOOL each week. These ridesharing platforms have revolutionised the city transport but at the same time it is also challenging for the industry incumbents as well as regulators.

THE SHARING ECONOMY: REGULATORY ISSUES Sharing economy has several benefits but its rapid growth is also posing intricate challenges and apprehensions for the existing regulatory frameworks. The benefits of the sharing economy are difficult to be disregarded even by the toughest critics, as these digital platforms facilitate efficient use of the assets, convenience, information symmetry and better pricing amongst others. Trust is one of the integral elements of P2P business which imposes need for regulations because there is currently no adequate way to ensure genuine players entry into this market and prohibit others. Regulations use legal instruments to implement social and economic policy objectives (Posner, 1974). Economic regulations explicitly define taxes and subsidies convention along with legislative and ad122


ministrative controls over rates, entry and other facets of economic activity. According to Cohen and Sundararajan (2015) asymmetric information, threat of monopoly, problem of public good and presence of externalities that are not internalised by the market participants sometimes lead to inefficient outcomes referred as market failures. P2P exchanges are prone to market failures in the absence of technological, self-regulatory or governmental intervention. Ride sharing platforms are exposed to major challenges or negative externalities due to usage of unsafe and uninsured driver or the vehicles. Short-term rental accommodation could negatively impact the neighbourhoods through increased traffic, parking hassles or other nuisances apart from adversely affecting the long-term rental market. Liability and insurance is also a gray area, as there is no clarity whatsoever, neither to establish the liability if something goes wrong nor to certify that sharing activities are insured. Henceforth, there is certainly a need for some intervention to define liability, ensure safety, and close the insurance gap. There are several issues associated with this new sharing model that have sparked widespread controversies. Uber has provoked protests and bans across the world whereas P2P accommodation has kicked off a debate in New York (apart from other places) with public advocate Letitia James arguing that Airbnb and the illegal hotel operators are contributing to the affordable housing crisis. It is believed that the lenient regulation of the sharing model could do more harm than good to economies. Dean Baker, Co-Director of the Centre for Economic and Policy Research, believes that P2P businesses are providing loopholes to at least few people to cheat the system. According to him Airbnb has been allowing people to evade taxes and regulations which are detrimental to the society and economy. He also insists that taxation rules for Airbnb apartments should be the same like that for hotels; and Uber should be subjected to the same safety standards as regular players (French, 2015) Behavioural economic literature (Castro, 2011; Gans, 2005; Cohen and Sundararajan, 2015) raises concern about self regulation as a tool to fully protect the consumers. There are apprehensions related to the reliability of reputational ratings, safety standards, frauds, dispute resolution and redress. There is possibility of consumers making poor decisions when flooded with choices. The possible risk concern, poor regulation and safety requirements, an unclear avenue for solution in the case of a dispute actually calls for regulatory intervention to safeguard consumers’ interest. Asymmetric Information commonly prevails in P2P exchanges. Generally when a person books a cab with Uber or Ola they are not aware about the qualifications or intentions of the cab driver and the rash driving might result in an accident termed as moral hazard (Holmstrom, 1979). Booking an accommodation with Airbnb does not communicate a clear understanding about the cleanliness of the accommodation nor the qualification or intention of the host. Asymmetric Information, in the absence of licensing and certifications, results in adverse selection (Ackerloff, 1970) with only few socially optimal transactions. Traditionally government intervention was the solution for market failures. Taxicab regulatory agencies were responsible for the verification and screening of the drivers and kept ride cost under check through metered fares. Sharing economy blurs the line between the personal and the professional services. According to a report, merely 6 percent of the Airbnb host are professional hoteliers and a large fraction of Lyft and Uber drivers are active on the platform fewer than fifteen hours per week which means that most of the drivers are not professional instead many people opt to offer their service’s as drivers to make easy money. Some regulatory framework is needed to overcome the possible market failures arising due to the supply of non-professional agents in the economy (Cohen and Sundararajan, 2015).

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SHARING ECONOMY IN INDIA- REGULATORY ISSUES AND RESPONSES Sharing platforms distort the lines between personal and professional lives and create gray areas for business owners, consumers and governments (Sundarrajan, 2016).The app-based taxi services, Ola and Uber are overruling Delhi High court’s order by charging surge prices regardless of the price cap set by the Delhi govt on the taxi fare charges. These aggregators are also accused of indulging in discriminatory pricing by offering discounts and offers that disrupts competition in the transport sector. The issue has been brought to the notice of an anti-trust regulator, the Competition Commission of India, (Mittal, 2016). Several state governments have responded to the complaints of customers and taxi unions by directing Ola and Uber to end surge pricing. Karnataka government has threatened to ban Uber services if they continue with the surge pricing. Uber has recently rolled out ‘upfront fares’ whereas Ola has introduced a concept called ‘low peak pricing’ which has been very well tagged as new-dressing for the surge pricing. According to this, the app will not display the surge price for instance; that the ride will cost 1.5x of the normal rates rather under the new scheme will show the actual raised charges applicable at the time of booking. This new scheme has not ended surge pricing as the tariffs will still be calculated taking into account the demand, traffic, toll charges and taxes (Pani,2016). According to the Union Minister Nitin Gadkari, the Indian Government is working on a bill to bring cab aggregators like Ola and Uber under greater regulatory supervision. According to him the present provisions of the ‘outdated’ Motor Vehicles Act does not impart much regulatory control over these taxi aggregators henceforth the Centre government along the state governments are working to propose a new legislation that will have provisions for verification of drivers, installation of GPS and other issues. If the regulatory authority of the country ensures verification of drivers, installation of GPS and other issues from their end, ride sharing platforms can make commuting more safe and economic. Apart from the known room aggregators like OYO or Airbnb there are many more small room aggregators operating in India. Generally, these unbranded hotels or accommodations are not quite reliable in terms of quality standards. These aggregators have little control on standardisation as they do not own the property and rely heavily on the host. This leads to lack of trust, information and reliability issues. Safety is also the prime concern. Most of the room aggregators do not disclose the information about the exact address of the property or the host as they are insecure about the host directly contacting the guest to save the commission. Genuine reviews are not allowed on room aggregator sites as it may dampen their business. Customers rely more on neutral review sites like Tripadvisor and Airbnb for the genuine review as they allow host to be the point of contact addressing the security issue. ‘Home-stay’ is another very popular term used for sharing accommodation whereby visitors stay in a house or apartment of a local resident of the city to which they are travelling. It also helps in reducing the transaction costs and taxes. Home-stays pass lower costs to customers via lower fares and customised services. Several unauthorized home-stays have mushroomed across Indian tourist places as a popular weekend getaways. Off lately these home-stays are in limelight on the ground of illegal activities like prostitution or some resorts being masked as home-stays to evade the tax liability etc. Lack of regulation seems to be the cause for many of these illegal activities. Kerela accounts for approximately 2,500 authorised home-stays but more than 12,000 unauthorised home-stays i.e., five times more than the authorised one. Kerala Society (Kerala HATS) has about 820 registered home-stays with the State tourism department but has no mechanism to control and regulate the proliferation of unauthorised home-stays. The unauthorised home-stays are not safe as they do not fall in the preview of regulatory guidelines. 124


The recent news article in Times of India reports of illegal activities such as prostitution, gambling and rave parties being organized at home-stays in Karnataka. Lack of mechanism to regulate the proliferation of unauthorised home-stays is the prime cause of activities and there is high possibility of tourists to end up in unscrupulous places if the home-stays are not verified by the tourism department. This sector needs a supportive regulatory mechanism to become transparent and overcome undesirable biases. A proper licensing system and certification system could be a possible solution to these problems. According to Cohen and Sundararajan (2016) negative externalities can lead to an oversupply of certain services whereas failure to internalize positive externalities could result in inefficiently low levels of market exchange which requires third-party regulatory intervention. There are regulatory concerns but the benefits of sharing economy to the society are difficult to disregard at the same time. A recent simulation study on the traditional US car market and an online P2P rental service, Getaround shows that P2P rental markets will benefit the below-median income consumers with welfare gains arising from the ’sharing economy’ through broader inclusion, higher quality rental-based consumption, and new ownership facilitated by rental supply revenues (Fraiberger and Sundararajan, 2015). The ride sharing platforms also seems to offer improved services (Minifie and Wiltshire, 2016) as the app permits riders to estimate fare and car arrival time, views the approach of a driver, monitor actual versus advised routes, streamline payments, and review each trip’s route, time, driver, and fare. The apps give strong incentives for the drivers to behave as each ride is being rated. If the regulatory authority of the country ensures verification of drivers, installation of GPS and other issues from their end ride sharing platforms can make commuting more safe. Hence, legalising ride sharing platforms could pave way for cheaper and more reliable point to point transport.

CONCLUSION P2P sharing economy has tremendous potential for decentralized innovation but apart from self-regulation there is need for a new regulatory framework to realise its full potential especially in a developing country like India. Government should aim to secure the opportunities offered by these platforms to optimise their operations as well as better utilisation of public resources. There is a need for a regulatory policy that concurrently enhances the key efficiencies of these platforms along with adequately addressing the rights of the consumers and other parties involved. Government should encourage start-ups to experiment and invent new businesses in the sharing economy along with adequate benchmarks, safety measures and standardisation of services. Encouraging start-ups also aligns to ‘Start-up India’ reform initiated by the government early in 2016.

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