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Collaborative consumption challenges compettion code

By Andrew Leigh - posted Thursday, 28 August 2014

In today's tech parlance, Nikola Tesla was a disruptive innovator. When he invented the alternating current electricity supply system and began marketing it to cities across America, Tesla took on the corporate might of Thomas Edison's Illuminating Company, which used the inferior direct current system.

Tesla's technology punctured the status quo by offering consumers a different way to meet their energy needs - one that was cheaper, more efficient and bypassed existing network structures. Edison went so far as to publicly electrocute an elephant in his efforts to discredit Tesla, but consumers voted with their wallets. Consumers moved from DC to AC power, and Edison's firm was spurred into innovative new technologies in search of fresh profit.

Today, the disruptive services in many service industries come from 'collaborative consumption' facilities that use the internet to link people together. Apps such as AirBnB and Uber are changing how people buy and sell services. Rather than paying hundreds of dollars for a fancy hotel room, AirBnB puts us in touch with ordinary people who have a room or apartment going spare. Instead of hunting for a scarce taxi on a rainy Friday afternoon, Uber lets us catch a ride with someone else who is going our way. Sure, dollars are exchanged for these services, but that transaction happens between individuals via an app rather than through established commercial providers.


The popularity of such services has grown dramatically in the past few years. Nearly 15,000 Australian hosts are listed with AirBnB, twice as many as were listed a year ago. In July alone, over 36,000 guests stayed at an Australian property booked through AirBnB, triple the previous year's bookings.

While I was waiting for a taxi on a street corner in Washington DC last month, a passing pedestrian said to me 'you should jump on Uber – there are lots of drivers near here'. Uber has only been operating in Australia for about a year. But with more than 450,000 users worldwide, it's likely we'll be seeing strong uptake here as well.

The regulatory status of these services is somewhat murky, and to date Australian governments have largely responded by cracking down on those providing them. In May this year the Victorian Government issued more than $50,000 in fines to Uber drivers for working without taxi licences. The City of Sydney and other local councils have similarly warned homeowners they could face fines for renting out their properties, citing zoning laws which distinguish between residential and visitor accommodation.

It is often the reflexive response of government to crack down on things which are new or untested. This tendency is only exaggerated when innovations challenge large established interests like the taxi and hotel industries.

But there is another way to look at AirBnB, Uber and other collaborative consumption services, which is that they represent an innovative use of technology to provide services that consumers appreciate. As tens of thousands of Australians have demonstrated, there is a strong market for services like these.

What's more, innovation can often make exclusive goods and services more accessible to the poor. Indeed, there is a strong case to be made for services like AirBnB and Uber purely on egalitarian grounds, as they may make holiday accommodation and easy private transport available to those who cannot otherwise afford them. With inequality having risen markedly over the past generation, collaborative consumption may be a way of allowing lower-income Australians to stretch their incomes further.


Instead of reflexively seeking to inhibit these new services, we should be engaging in an open-minded discussion about the economic and social contribution they can make. We should also be exploring how federal or state regulation can best balance the need to protect consumers with supporting innovation and growth in the sharing economy.

The current Harper Review of competition policy is well-placed to explore these issues as part of its wider survey of the Australian regulatory landscape. After all, many of the complex policy and regulatory questions posed by this shift towards collaborative consumption are essentially concerned with competition between established providers and start-up innovators.

For example, the review should consider how existing regulation of the taxi industry restricts competition from other transport providers, and what the alternatives might be. It should also explore how current zoning and licensing regulations for a wide range of service industries can be made more flexible to accommodate emerging providers in the sharing economy. Importantly too, the review should look at how regulations governing these kinds of services can be harmonized across Australia's states and territories, and whether there might be some areas where the Commonwealth is better placed than the states to make and enforce the rules.

Like Tesla's DC innovation, sharing services are already beginning to disrupt well-established industries. The Harper Competition Review represents an important opportunity to think strategically about the contribution they can make, as well as how our regulatory systems can be made more adaptive and flexible to support future innovation. The smart thing to do is to creatively embrace the economic and social potential of sharing services rather than seeking to put them down like Edison's elephant.

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This article was first published in the Australian Financial Review.

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About the Author

Andrew Leigh is the member for Fraser (ACT). Prior to his election in 2010, he was a professor in the Research School of Economics at the Australian National University, and has previously worked as associate to Justice Michael Kirby of the High Court of Australia, a lawyer for Clifford Chance (London), and a researcher for the Progressive Policy Institute (Washington DC). He holds a PhD from Harvard University and has published three books and over 50 journal articles. His books include Disconnected (2010), Battlers and Billionaires (2013) and The Economics of Just About Everything (2014).

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