FTC Releases Report on the Sharing Economy

On November 17, 2016, the Federal Trade Commission issued a Staff Report exploring competition and consumer protection issues associated with what is often referred to as the sharing economy. "The 'Sharing' Economy: Issues Facing Platforms, Participants and Regulators" synthesizes information that was presented at the FTC’s June 2015 workshop and in the 2,000 comments that were filed with the agency in association with that workshop. Although the agency does not make broad policy recommendations for balancing the competition and consumer protection issues implicated by the sharing economy, the Report signals the FTC’s ongoing commitment to innovation “as a major driver of long-term consumer welfare gains” and to use of its advocacy tools to protect competition for emerging business models and disruptive technologies.

The “sharing economy” describes a set of business models known as peer-to-peer platforms for commercial transactions that allow small buyers and sellers to interact, typically through mobile applications on smartphones and tablets. The platform adds value as an intermediary, facilitating business in part by reducing the costs to buyers and sellers of finding each other and, typically, also handling the payments. According to the Report, the sharing economy generated $15 billion in worldwide revenues in 2013, driven in particular by platforms in the short-term lodging and transportation sectors, including Uber, Lyft, and Airbnb. However, according to comments cited by the FTC, the sharing economy has grown far beyond lodging and transportation, and now covers more than 16 broad sectors including prepared meals, custom-made goods, rented tools and machines, and household and office services. It is expected to generate $335 billion in activity by 2025.

The Report describes the characteristics, variations in design, and competitive dynamics of peer-to-peer platforms, and examines the tensions that have arisen due to competition between them and more traditional business models. These tensions have been especially acute in heavily regulated industries where the regulatory process can be used to impede or entirely bar the entry and expansion of new competitors.

The Report identifies trust as a key feature of a successful platform. According to the FTC, a successful platform must “make transacting between strangers safe and reliable enough that buyers and sellers feel confident that their transaction will proceed as agreed.”

The FTC devotes one chapter of the Report to examining the efficacy of market-based systems for creating trust, such as user ratings and platform satisfaction guarantees, which operate like insurance. The Agency also addresses the debate surrounding regulatory approaches to creating trust and balancing competition with consumer health and safety. Consistent with its long-standing concern about anticompetitive government regulation, the FTC explains that while regulation is sometimes necessary to protect consumers, unnecessary regulation can chill new modes of competition.

While the Report focuses on presenting the views of various experts and stakeholders without making detailed policy recommendations, it points to the Agency’s broader competition advocacy work for guidance. That work, which includes advice and input on state and local regulations across many sectors of the economy, is based on the principle that “regulators should impose requirements only when there is evidence that regulation is needed to protect consumers . . . Moreover, regulatory actions should be tailored so that they are no more restrictive than necessary to serve those goals.”

More broadly, the Report should be of interest to any company active in technology and innovation-driven industries. It provides a valuable window into FTC staff’s thinking about the sometimes unique dynamics of such industries, as well as the Agency’s continuing consensus that incentives for innovation should be preserved. The Report’s observations about the value of innovation, the role of technology, and the economic characteristics of dynamic markets may also prove to be relevant to a wide range of enforcement matters, from conduct challenges to mergers in high-tech industries.