By Eliad Shmuel.
The magazine Fast Company recently published an article with the provocative title: “Can The Sharing Economy End Discrimination?” The author, David Mandell, is CEO of the office sharing marketplace PivotDesk and promoter of a new trend now everybody talks about: the sharing economy. Like David Mandell, many believe that millennials choose access over ownership, and that services such as Airbnb and Uber are democratizing the hospitality and private transportation business. This is because, rather than relying on corporate power, branding and expensive marketing, users determine themselves, through ratings, whether they like and thus recommend certain service providers or not. Likewise, providers, e.g. of Airbnb apartments, choose users based on their ratings. Ratings and reviews may vary, but on average, according to Mandell, they provide fair and objective feedback. Each participant of the sharing economy has thus equal chances of becoming popular among others – no matter what educational or social background, what race, religion, gender or sexual preference. But is that really so?
A recent study by Benjamin Edelman and Michael Luca of Harvard Business School suggests otherwise. To create a more personal feeling and increase trust, some sharing economy platforms ask users and providers to post a profile picture and even link their social media accounts to the profile. The study suggests that, possibly as a result of these profiles, in New York City, non-black Airbnb hosts, on average, charge 12 percent more than black hosts for similar types of rental units and locations. This finding stands in contrast to the idea that technology may be a potential equalizer in society. Although a compelling idea, in reality, Internet platforms, such as Airbnb, may in fact be the opposite – a perpetuator of inequalities in society.
But why is that so? I argue that one major reason is the ambivalent role of trust as a driver of success in the sharing economy. Let’s take a closer look:
Reviews and ratings are essential for participants of the sharing economy. If you are an Airbnb host, for example, you are dependent on positive reviews to attract customers. In turn, as a new guest (without prior reviews), you might be limited to staying only with hosts who accept guests who do not have reviews. After all, without trust (which is heavily based on reviews), people are seen as strangers. Rachel Botsman argues in her popular Ted Talk “The currency of the new economy is trust” that this is a good thing. This is because the Internet allows to accumulate reviews-based trust over time and to transfer trust as a currency between platforms, so that it can follow those who earn it. For example, if a number of users emphasize in their reviews of an Airbnb host that this host communicates well, the same host could leverage on this reputation when opening a new business on Ebay.
Yet, there is a flip side. In her talk, Rachel Botsman overlooks that, in particular, opportunities for generating initial trust are not equal. For example, living in a desirable area for tourists or business people will help a new Airbnb host attract more customers right away, independent of prior reviews (or the lack thereof). This initial competitive advantage will result in more reviews and thus generate trust among other users. If, however, you cannot afford to live in such an area you are already disadvantaged. Moreover, you may or may not have the education and language skills needed to effectively offer services or write compelling profiles on sharing economy platforms. In turn, if you have the means to travel a lot – and thus become user of Airbnb or Uber more often – you will be rated more frequently, which, again, gives you an advantage over others. Finally, the more information you give about yourself on your profile the more likely will others make judgments about the quality of your service based on prejudices associated with gender, race, age etc. – in particular if you lack user ratings.
Thus, although reviews-based systems – and the mechanism of trust – give everybody an opportunity to become a successful participant of the sharing economy, this opportunity is not equally available to everyone. And because reviews reward those with initial competitive advantages – due to their education, location, race and gender – reviews-based systems may in fact increase inequality rather than lower it.
What do you think? And how can this problem be addressed so that the sharing economy can fulfill its promise – give income opportunities and affordable services to everyone!
Eliad Shmuel studies the sharing economy. In the summer of 2014 he interviewed a handful of Airbnb hosts in the Boston area, as part of his research.