Market Curiosity: Exploring Markets And Systems

January 26, 2013

Critiquing: “The sharing economy wants to play with the big kids — is it ready?” by Greg Hanscom

Filed under: Castpoints, Editorials — Jeff Fitzmyers @ 9:06 am

This is one of the first articles I have noticed about Collaborative Competition meeting the status quo.

A quick gander at the site’s New York City listings last month led the travel news site to conclude that more than half of them were in violation of state law [21 pages of unintelligible “stuff”]… Airbnb’s response, via its global head of public policy, David Hantman: “We can’t possibly keep up with the law in all the cities…”

This is true. Just go to any county library and ask to see the section for local county and town laws, regulations, rules, etc. In the case of San Luis Obispo County’s area, where my Business Law teacher sent our class years ago just for this purpose, there were literally thousands of books. “As of 2010 the Federal Register [all the federal regulations for businesses] was 81,405 pages long.” That is 160 reams of paper; 850 pounds of paper; $1,300 for the cost of the unprinted paper; 27 foot high pile of paper.

But Airbnb’s strategy of pleading ignorance or powerlessness in New York, one of its biggest markets, doesn’t exactly add up: Here the company actively lobbied against the very rule that so many of its users are apparently [allegedly] flouting.

I skimmed the “rule” that runs 21 pages and don’t understand it. “…natural person or family for 30 consecutive days or longer (the permanent occupants)…” Talk about complexity, a whole lot of legalese: Would not “the permanent occupants” be a natural person and or family? Why pick “30” days? Why not 29, or 31? Is that number arbitrary? Is the cost of figuring all this stuff out worth it to all involved worth it?

Arun Sundararajan, an associate professor at NYU’s business school, wrote in Wired in October that reputation systems … and the transparency of the web make regulations obsolete:

After all, profit is a much more powerful driver for quality than regulatory compliance. If your last customer — one who has been vetted by others and has built reputation credibility — complains about the hygiene levels of your shared lodging, your future business prospects on Airbnb are pretty bleak.

Who better to discern hygiene than the omnipresent renter who also has their reputation on directly on the line. Inspectors are not around all the time and answer to the city, not directly to the people on either side of the transaction.

Even though in “2011 as the [NY City] issued 1,897 violations”, it’s trivial to ascertain that 3,200 [current rentals] are illegal under New York law. Predictably, criminalizing something that has value just makes people go underground breaking more “laws”. “…With Toshi, they’re looking at online false advertising as part of their lawsuit…” What good is a “law” that is selectively enforced “New York hosts have generally not been targeted for enforcement.”? Who decides who enforces the law against whom?

I suspect plenty of web-savvy customers share my trepidation at relinquishing the safety of dinner to the handful of anonymous netizens crazy enough to obsess over an online kitchen livecast. While many of these regulatory battles do smack of governments protecting old industries that are “disrupted” by the new sharing model, there are often good reasons that these rules exist.

There is always the option of the “legal” hotels where one will pay more money for “safety”. Obviously safety and hygiene are important. The question is, what works best in in those regards? Airbnb states their have been over 10 million nights booked. The 2 articles referenced alleged ZERO problems between people who want or have a room for rent. The only listed complaint was a single one about over crowding. Most complaints reportedly came from “residents”.

“I don’t think sharing economy companies are anti-regulation at all,” Turner adds. “The question is what’s reasonable.” That’s a politician’s question so that they can manipulate and coerce everyone to “compromise”. The question is what works, and what is valuable. At the end of the article is a possible answer:

“But you [sharing economy companies] are a threat to existing industries, and these companies spend millions and millions to protect their market share from each other and anyone from the outside.”

Rentals that spend their limited “millions” to protect their market, instead of bettering their product, are competing with rentals that spend their money on offering valuable products that are often unique. Which is proving more adaptable to the market?

If sharing economy wunderkinds can’t get their acts together and face regulation reality head-on, they may watch their profits decline and lose traction in the battle to make collaborative consumption a societal norm.

Seems like it’s the opposite. Regulations are just another hidden tax and are subject to corruption, regulatory capture (more), selective enforcement, unintended consequences, etc.

[Regulations] cost the [US] economy nearly $2 trillion a year… $15,000 per household… This year alone (2011), 50,000 pages of new regulations have been added to the Federal Register… One frustrated banker said it takes 20 percent more employees to deal with all the paperwork to comply with regulations than it does to work on loans… “Miniature horses are now service animals. So restaurants and airplanes have to allow mini-horses on…”

What works better?
• Regulations that are expensive, and have serious systemic flaws.
• Transparency and reputation that apparently have no overtly notable reported problems after 10 million transactions world wide (other than annoying the status quo), and are incredibly cheap.

Update January 28

Startup dreams meet pop-up rentals The newcomers already have broken the laws around taxi services (with apps that allow anyone to be a cabdriver), music (their first CDs came free off Napster) and hotels (they often stay in untaxed AirBnB rooms), so zoning codes are just another institution to drag into the 21st century. To them, occupancy limits are like copyright laws – simply obsolete.

Wait, there is a big difference between ignoring things that don’t work (laws about taxis and hotels), stealing (music, copyright), and indirect fiat (zoning). “In many ways, pop-up housing is a necessity, even as some worry that these illegal arrangements could lead to abuse or unsafe conditions.” And yet no abuse or unsafe conditions are reported in the article. The difference is that there are plenty of choices available so the only reason to be part of a bad situation is psychological baggage.

“If San Francisco will not build enough new units, they will invent them.” Lead follow, or get out of the way.

Scam complete: the US government takes a page from Diocletian’s book… …An important lesson from history, and a trend that has been repeated numerous times… governments will stop at nothing to keep the party going just a little bit longer… With a debt level over 100% of GDP, the US is so broke that the government must borrow money just to pay interest on the money it’s already borrowed. They’ve lost over a trillion dollars a year since 2008… As with any good scam, the government must maintain public confidence… Dissent must be vigorously and swiftly pursued. So when S&P finally downgraded the US one notch in August 2011, the SEC and Justice Department announced that S&P was under investigation, just two weeks later… Egan-Jones, a smaller rating agency, has been even more aggressive, downgrading the US credit rating three times in 18 months… In a country that churns out thousands of pages of new regulations each week, it’s easy to find a reason to go after someone… In the case of Egan-Jones, the SEC brought administrative action against the agency within two weeks of their second downgrade. And a few days ago, the case was settled… Egan-Jones is banned for the next 18 months from rating US government debt. They’ve effectively been silenced from telling the truth.

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