Betwixt and Between: Regulating the Shared Economy

Introduction I. The Disruptive Evolution of the Sharing Economy A. The Driving Forces Behind the Sharing Economy 1. Modern Trust 2. Technology 3. Economic and Cultural Pressures B. Benefits of the Sharing Economy C. Drawbacks of the Sharing Economy D. Case Study: Airbnb and Uber 1. Airbnb 2. Uber II. Defining the Sharing Economy A. Defining the Sharing Economy 1. Platforms 2. Microbusinesses 3. Excess Capacity 4. High-Powered Information Exchange B. The Sharing Economy's Current Regulatory Landscape III. A New Economy, A New Framework A. Platform Regulation to Prevent Fraud and Promote Safety B. Platform Regulation to Generate Tax Revenue C. Platform Regulation to Allocate Risk D. Platform Regulation to Ensure Fair Competition Conclusion Innovation, by its nature, does not always fit within existing structures. --Turo CEO, Andre Haddad (1) INTRODUCTION Airbnb, Uber, Eatwith, and other sharing economy (2) platforms facilitate short-term rentals, transportation, meals, and even pet-sharing. The platforms in the sharing economy use technology to connect people who have private excess capacity to those who want to purchase it. Rather than staying in a hotel, customers can stay in a spare bedroom through Airbnb; rather than hiring moving companies, customers can get help moving via TaskRabbit; rather than going to a restaurant, customers can have a meal prepared for them in someone's home via Eatwith. TIME Magazine listed the sharing economy as one of the ten ideas that will change the world, (3) and Forbes estimates that the revenue flowing through the sharing economy surpassed $3.5 billion in 2013, with growth exceeding twenty-five percent per year. (4) At that rate, peer-to-peer sharing has moved beyond a fringe movement and into a disruptive economic force. Look only to Airbnb, which at six years old had a valuation of $13 billion, (5) much higher than the Hyatt hotel chain ($7 billion), (6) and Uber, which at four years old had a valuation of $40 billion, greater than Hertz, (7) Avis, (8) and Enterprise (9) combined. (10) Companies using this relatively new business model have faced innumerable legal challenges. In some places, platforms are simply banned from operating; (11) in others, supply-side users (12) or the platforms themselves are fined. (13) The reason for the difficulty and uncertainty is that the sharing economy is in a betwixt and between space--it does not fit within existing legal frameworks. Platforms view themselves as online companies regulated by Internet law, though they execute mostly in the offline world. (14) Furthermore, sharing economy platforms are facilitating transactions that have always been legal but are now executed on such a large scale that the potential for harm to the public is very real. What are the rules when the lines blur between giving a friend a ride to the airport and operating as a professional driver? This Article argues that existing laws cannot effectively regulate the sharing economy because the sharing economy is uniquely comprised of individuals profiting from their personal excess capacity. These individuals operate microbusinesses, which cannot, without devastating consequences, be regulated like traditional businesses. This Article proposes a shift in liability rules to mitigate the harm caused by market defects in the sharing economy. This Article is divided into four parts. Part I outlines the evolution of the sharing economy, its benefits, and two sharing economy platforms, Airbnb and Uber. Part II defines the sharing economy and describes the current regulatory environment governing it. Part III proposes a method to achieve many of the goals of regulation in a manner that balances protection of users, consumers, and existing businesses with the need to support innovation and microbusiness. …