Like the name suggests, Sharing Economy is “a socio-economic system built around the sharing of human and physical assets”(Wikipedia). The system sees the excess capacity in goods and services as a problem and solves it with collaborative consumption. Simply put, Sharing Economy wants to lower your cost of living by letting you borrow a bike from you neighbor and make your trip in Porto Rico much more enjoyable while cheaper by renting you a house in San Juan.
Jeremy Rifkin’s comments on Airbnb’s success explains a lot about the Sharing Economy:
“Airbnb owes its meteoric rise to a new phenomenon — near zero marginal cost — which is disrupting entire sectors of the global economy and giving rise to a new economic system riding alongside the conventional market. Marginal cost is the cost of producing an additional unit of a good or service once a business has its fixed costs in place, and for businesses like Airbnb, that cost is extremely low.”
The extremely low marginal cost is one of the greatest benefits of Sharing Economics. By efficiently redistributing resources among the crowd, this economy system significantly decreases the pressure of purchasing for individuals. For example, if you want to buy a vacuum machine, in the conventional market, you have to pay $200. That’s $200 per person. But with the sharing model, although the nominal price of the vacuum machine is the same, since you can share the purchase with your neighbor, the real cost becomes $200/n. The more you share, the less you actually pay.
The concept is simple, but the impact can be huge.
Ever since the recession, most households’ real income has been decreasing with the ever-rising CPI.
This forces average households to spend greater portion of their income on food and other basic living expenses. People are scared of big purchases because of the financial pressure. Shared purchases, however, removes this pressure. The real expense on shareable goods is divided as explained in the vacuum example and therefore become much lower. With the cheaper shareable goods, people will be able to buy more. Therefore, in the short run, sharing economy can create extra purchase power to stimulate the market.
In the long run, with the growth of population, the scarcity of resources is going be increasingly significant. U.N projects that, by the year of 2050, there will be 9.3 billion people in the world. A world without resource-sharing would be unimaginable by then.
The only concern about sharing economy is regulatory uncertainty. Sharing Economy’s model suggests that everybody can be service provider or property lender. This will surely introduce problems when it comes to security, licensing and other indirectly related issues such as benefit negotiating. But since Airbnb and Uber have been proven to be successful in their respective industry, it is expected that these obstacles on Sharing Economy will be removed in the near future.