Does the Sharing Economy Reproduce Inequality?

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.

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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.

 

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5 thoughts on “Does the Sharing Economy Reproduce Inequality?

  1. Pingback: Pen Sharing – The Invisible Global Sharing Economy That Works | Organizations and Social Change

  2. Totally agree with Marc, I think the non monetary family of the sharing economy is the only one where we find “initial trust”, not based on reviews or ratings…And the only which can lower inequality !
    The fact that “it’s not for money” is so powerful and deserves to be highlighted, thanks Eliad !

  3. Thanks for this thought-provoking piece. It seems to me that ratings and trust are undoubtedly important but there are other significant forces that could potentially deepen or lessen inequality.

    Yes, ratings matter but ratings are a significant force even outside the sharing economy (think Yelp, Amazon reviews, Trip Advisor, etc.) This points to terrain where trust and the use of technology could be quite democratizing in that a used book vendor on-line can largely overcome geographic disadvantage and operate in a seemingly gender-, race-, and disability-blind sphere provided that they ship reliably and maintain good communication.

    The possibly greater domain for democratization is that the shared economy creates opportunities for individuals to generate income and access assets/services directly from other individuals rather than depend as much on corporate interests. Yet, that creates interesting complexities: I can go on a trip and stay somewhere that’s a much better value and far more interesting using Air BnB than the previous options that I had through hotels. A private individual was able to earn some money by renting a place to me. Those dollars are likely to stay local whereas a larger chunk of the profit from my hotel stay will not. Yet, the hotel pays tax that benefits the state and in most jurisdictions the sharing economy options do not. That’s become a big deal in New York, San Francisco and states heavily reliant on tourist revenues such as Montana. An Air BnB housing option also isn’t subject to various possible consumer protections (sprinkler systems, etc.) yet, that may be true in my own home or when I visit a friend and the risks may be lower to begin with (i.e. staying in a small cabin than a large hotel). The shared economy creates increased revenue streams for individuals but also revenue/job loss for hotel staff, taxi drivers (when thinking about Lyft, Uber).

    it seems important in all of this that when we invoke notions of democratization we still acknowledge that these intermediary organizations are corporations (AirBnB, Lyft, Uber, Zipcar, etc.) and we consider how control and power don’t necessarily lessen but morph. It may also be interesting to consider the rise of sharing economy activities at a time when the shared use of some public assets (libraries, parks) are in some cases lessening. In part, this suggests to me that beyond economic considerations, we also must consider the relational aspects of all of this. Do shared economy activities that cause parties to interact somehow substitute for a possible loss of relationships between buyers and sellers that occurs in an internet economy? Finally, it may be worth considering largely non-commercial efforts within the sharing economy that exist to encourage sharing as a means of lessening consumption and waste (efforts like freecycling and yerdle).

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