PROSEco is an acronym for ‘Platform Regulation and Operations in the Sharing Economy‘. It is a research project bringing together a group of professors from UCLouvain and UNamur and a team of doctoral and post-doctoral researchers.
Our objective with this research project is to conduct a fine-grained analysis of the implications of the sharing economy, from an operational, economic and legal perspective. We formulate our overarching research question as follows:
How can platforms in the sharing economy deliver long-lasting value for their stakeholders and for society as a whole?
RQ#1. How do sharing economy platforms create and distribute value?
RQ#2. How to design effective and fair rating and review systems?
RQ#3. What are the impacts of the pricing policies used in the sharing economy?
We selected these research questions because they fulfil three important requirements: they are (i) relevant (i.e., they allow us to address our main research question), (ii) novel (i.e., they are untouched in the existing literature, especially from an interdisciplinary viewpoint), and (iii) amenable (to the competences of our team). Let us briefly explain why.
In terms of relevance, answering RQ#1 (creation and distribution of value) clearly constitutes a first step towards understanding how SEPs can deliver long-lasting value. The next step consists in analysing more deeply the specific instruments that SEPs use to create and distribute value, namely rating and review systems (RQ#2), and pricing policies (RQ#3). The novelty does not reside so much in the issues per se but in our approach to tackle these issues: we will not only combine the insights of three disciplines but also, within each discipline, we will mobilise fields that have been scarcely used so far to study the sharing economy (e.g., behavioural economics, consumer protection law and, basically, most fields in operations). Finally, in terms of amenability, we believe that our team proposes a set of complementary and adequate competences to address these issues in a useful and original way.
The state of the art
Although the sharing economy emerged recently, scholars in economics, law and operations—the three disciplines that underpin this project—have already produced a body of research on the topic, building upon existing work that analyses related issues. We give here a brief overview of existing research.
From an economic point of view, SEPs are seen as a special instance of so-called ‘two-sided platforms’, as they facilitate the interaction between two distinct groups of users (i.e., two ‘sides’), namely service providers and consumers. The main vector of value creation for such platforms is the active management of the network effects that exist among the users of the different groups.1 Typically, each group exerts positive ‘cross-group’ network effects on the other: the more service providers join the platform, the better off the consumers (as they gain access to a wider array of services); the reverse is true as well, as the presence of more consumers on the platform raises the service providers’ expected benefits. Economists have studied SEPs at three levels: their inner workings (How do they choose their price and non-price strategies?), their micro-environment (How do they compete, among them or with non-platform rivals?), and their macro-environment (How do they impact labor relations, the environment, urban planning?).2 Previous studies have investigated the important diversity of business models adopted by SEPs and stressed the very different societal impacts that they are likely to have.3
In legal scholarship, two types of questions have to date attracted most attention: (i) How do existing rules—most of which were not initially designed with platforms in mind—apply to platforms? (ii) Is there a need for specific rules? SEPs raise indeed the twin legal issues of under and overregulation: traditional laws do not always cope with the large, global, and profit-driven companies, which tend to escape regulation (e.g., tax, or labor rules); in contrast, small and local community platforms often struggle to meet the legal requirements imposed on professional operators. The operations of SEPs are also intertwined with the exploitation of data, which raises important issues regarding competition law (e.g., is there a specific type of dominance related to data collection?),4 consumer law (e.g., consumer protection relies largely on information disclosures about how data is processed; privacy protection relies on new requirements for data processing and management), and labor law (e.g., the control of more autonomous workers is largely left to reviews and reputation assessments and other algorithmic tools).5
Finally, from the perspective of operations, SEPs are examined for the contrasted impact they have in terms of sales and operations planning (S&OP), which is one of the most critical activities that firms undertake in order to match supply and demand efficiently over the planning horizon. On the one hand, SEPs offer new avenues to increase the adaptability of the supply chain by providing a large and flexible source of capacity. Yet, on the other hand, SEPs also imply a loss of control on this capacity, on its availability and on its price. The impacts, opportunities and risks of SEPs on the S&OP process and on the supply chain have been scarcely studied, if at all.6 However, scholars have started to apply a number of new research avenues to the sharing economy.
Although a good deal of the existing literature is mono-disciplinary, scholars from different disciplines increasingly join forces to shed a better light on the sharing economy. For instance, economists and lawyers combine their expertise to frame appropriate regulations; so do scholars in economics and operations to improve the management of SEPs.7 Our intention with this research project is to exploit further the cross-fertilisation between the three disciplines.
1 For a recent survey, see Belleflamme and Peitz (2018).
2 For an introduction to these issues, see Federal Trade Commission (2016) and the references therein.
3 See, e.g., the conclusions of the City4coEN project conducted at UCLouvain. See also Martin et al. (2015) or Martin (2016).
4 See Ezrachi and Stucke (2016).
5 For a treatment of these issues, see Graef (2016), Ducato (2018) and Ducato and Strowel (2018).
6 See Victorino et al. (2018).
7 See, e.g., Strowel and Vergote (2016), and Jiang and Tian (2016).
The ‘sharing economy’ is usually presented as comprising activities that involve the sharing of resources, in the sense that owners of underused resources (the ‘providers’) make these resources available to other individuals (the ‘consumers’). Even if this definition remains vague (there are many nuances in the terms ‘sharing’ and ‘underused resources’), observers agree that activities in the sharing economy share four important features:
A new breed of intermediaries, called digital platforms, is pivotal in the large-scale development of these activities. By leveraging digital technologies and data analysis techniques, these platforms reduce transactions costs and make it viable for providers and consumers to interact; prominent examples are global, for-profit, platforms such as Uber or Airbnb, but there exist all sorts of platforms, which differ in their size, scope, ownership structure or business model.
As activities in the sharing economy are decentralised (and sometimes informal), their organisation requires innovative governance models, with digital mechanisms (e.g., rating and review systems) replacing usual economic interactions (e.g., face-to-face contacts).
As a consequence of the first two features, digital platforms in the sharing economy are data-intensive, insofar as they rely to a great extent on data and algorithms to deliver their services.
As the sharing economy is gaining momentum in various sectors of activity, it is increasingly perceived as disruptive, as it proposes a substitute offer in many industries, raises conflicts and tensions (e.g., between market and non-market logics), and exposes many stakeholders to new types of risks.1
Existing analyses show that the sharing economy is a land of promises but also of great perils. As far as for-profit platforms are concerned, economic viability is elusive: fast-growing and global platforms like Uber are still struggling to make a profit, while the failure rate of startups is higher than in other sectors. As for non-profit platforms, many also fail to reach their objectives and to stay in activity. For both types of platforms, the road to success is paved with a number of operational, economic and legal challenges, which directly stem from their innovative business model.2 This finding motivates our interdisciplinary research project.
The recent closedown of two popular Belgian platforms in the food sector is particularly illustrative of the previous finding. Take Eat Easy was a for-profit platform in the home food delivery market, while Menu Next Door was pursuing a more collaborative goal by connecting neighbours who would cook for one another. Despite very promising starts, both platforms were eventually forced to cease trading because they were unable to cover their costs, and their funders could not be convinced that this situation would change any time soon (see here and here). Retrospectively, it appears that both platforms struggled with operational constraints (difficulty to align demand and supply in time and space in a cost-effective way), their economic environment (very strong competitive forces), and legal or regulatory issues (for Take Eat Easy, uncertainty about the professional status of its couriers; for Menu Next Door, issues with the standards imposed by the Federal Agency for the Safety of the Food Chain).3
The success or failure of sharing economy platforms (referred to hereafter as SEPs) certainly matters for their (actual or potential) stakeholders but also for society as a whole. On the one hand, SEPs are disruptive and threaten existing businesses (as evidenced by the protests of taxi drivers in cities where Uber operates). On the other hand, the activities of these platforms may entail unexpected consequences on their social and economic environment (like Airbnb’s effects on cities’ housing markets and quality of life).
1 As underlined by the European Commission here, here and here.
2 See Chasin et al. (2018) for a general discussion of the challenges faced by platforms in the sharing economy.
3 To get a better grasp of the Take Eat Easy case , see IPdigIT’s analysis (in French) or Belleflamme and Neysen (2017).