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5 May 2015

Sharing is caring, or is it all about the invisible hand?

We are not living in a golden age for the moment, so the decisions we make are well considered. Why should we spend money on products we hardly use, if we can borrow them from our neighbors or friends? The saved money can be used to go to a concert or travel to South-Africa.


Many people state we live in a sharing economy. Sharing economy means that people don’t need to have personal ownership of a product but collaborate to share use of products or services. Well known examples to explain the sharing economy are Uber and Airbnb. The question however is: Are these real examples of a sharing economy? Shouldn’t we rather talk about a platform economy? One company creates a platform that offers a link between supply and demand.


For me sharing economy gives the impression it is part of a social economy, where actions are taken out of altruism. However, when I book a bed for a night in Stockholm with Airbnb and I pay for this stay, how can this be called sharing? Rental economy would be a better term for that. Don’t get me wrong, I’m not being negative about these initiatives. I’m an economist so I get a thrill from actions that generate added value. But we should not narrow our view and call this a sharing economy, since it is the platform generating the revenue.


In England there is a platform “Borrow my doggy”. You can register and look for someone who takes your dog for a walk or keeps Bobby for the weekend. When you look for a doggysitter or want to register as a doggysitter, you need to pay an annual subscription fee In other words, the platform brings demand and supply together and earns money from both sides.


A lot of creative and young entrepreneurial startups are launching these ideas and are becoming competitors of the established firms. The challenge is what these established firms can do to compete with agile startups. For me the answer is simple: create a platform that is relevant for your consumer and suitable for your service. Take this interesting example:  “Toolpool”, a Swedish DIY shop, was losing money. When analyzing their business they discovered that they earn more money on supplies like screws, paint and tape than they earn on the expensive investments like power tools. Therefore they developed a platform named toolpool, similar to a carpool but then with tools. Consumers should register online or with an app, reserve a date and pick up the tool for free in the shop. When people came to the shop 80% of these clients bought extra supplies to get the job done and their sales increased by 25%.


So, we should stop calling platform initiatives part of a sharing economy since it is part of the capitalistic economy where supply and demand come together for a price both parties agree on. Which brings us back to the first lesson in economics, in the words of Adam Smith:   He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.


Something to think about next time you book your Uber Taxi to go to your Airbnb bed while Bobby is borrowed by another petlover in your hometown and your dad is doing some chores in your house with toolpool power tools.​