Principles of Sharing economy

Sciences Po Paris

School of Management and Innovation

Sharing economy:

What to know and how to survive?

Anna Zsófia SOMOGYI

Master of Organisational Behaviour and Human Ressources

The sharing economy is here to stay that’s why it is really important that traditional enterprises adapt to this new trend and demands risen up. This business model essentially consists of the share of unused capacities, resources on on-demand basis usually through an IT platform based on mutual trust and usually striving for sustainability. In the case of sharing economy companies we distinguish consumer-to-consumer (c2c) and business-to-consumer (b2c) business models. Most well-known actors such as Uber, Airbnb, or Couchsurfing work in c2c. For the b2c business model, the provider of the service and the provider of the channel are one and the same: so users can access the resources they need from a company through its own platform (Annexe 1).

Our company really has to be aware of the reasons why do people prefer these offers. It has a really simple financial reason: these services and goods are cheaper even if they are in really good conditions or of high quality. Saving money or having some extra income will always encourage people to prefer these possibilities. Besides this people are more likely to buy from people they have a connection with or, just simply saying, from real people. Transparency and personalization are crucial reasons to have more trust in sharing economy users. We also have to mention its simplicity: all you need is a smartphone. It’s no coincidence that the core demographic for both of these platforms is between 16 and 34 years, an age group where smartphone ownership is almost universal. These young users are typically really enthusiastic about travel, they would rather sign up for a membership to a service than pay extra money to own it (Annexe 2.). Sharing economy also contributes to new experiences, new acquaintances, and, the most importantly, the ability to get the service or good at a convenient time and in a convenient location.

What are their main facilities in face of our traditional firm? First of all they have competitive edge in terms of taxation and costs: 1) because of their small size, high number and high fluctuation, it is extremely difficult for the tax authorities to detect them, the tax conditions are not clear, in most cases, they pay only a small amount of tax in the country where they provide services. 2) In many cases they create opportunities to circumvent certain industry standards. Unlike us, with this, sharing economists can face lower costs and lower administrative burdens, especially if the service is provided "full time" professionally. It is difficult to fit the provision of services into the traditional private entrepreneurial framework, as this would eliminate the benefits of simplicity.

From this point of view they represent a grey market and not just traditional enterprises but also governments face problems. International examples show us different ways of resolving:

1. Taxes are paid directly by platform operators instead of service providers.

2. Obligation for platform providers to share their data.

3. Signing individual agreements with the sharing economy actors.

4. Inform the service providers of their tax obligations.

5. Controlling as a call-to-action action.

6. Register and verify service providers.

7. Apply part of the rules governing traditional industry players to sharing economics.

8. Distinction of service providers according to their ability to take part in the sharing economy on a case-by-case basis or on a business-to-business basis.

9. Time limitation - for example, maximize the number of days you can spend on a shared economy platform for homes.

10. Location-Based Restriction - Only in designated zones can the service be provided.

Despite of these ideas in most cases, however, regulators prefer to ban the service altogether. For two reasons banning these companies should not be considered: on one hand in many cases companies can take advantage of legal loopholes to avoid bans or even work half-illegal. On the other hand the sharing economy as a global trend should not be totally banned as innovative, competitive initiatives can have a positive impact on the economy, increase tax revenues and employment. Generally speaking in most cases there is no comprehensive solution for sharing economics firms, typically they try to bring legislation not on national but local, municipal level.

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