Enjoyed reading a comprehensive working paper from the Harvard Business School on the upsides, downsides, and potential downsides of two-sided markets (aka platforms); implications and challenges for the legal system with respect to regulating these new types of services. The paper suggests ending “protectionist” regulation and discusses negative externalities (many of which have initial evidence but require further study), asymmetry in information (as compared to incumbent services), cognitive biases such as racial profiling based on profile picture, not being incentivized to provide “universal service”. The paper provides a nice overview of both driver and consumer perspectives, concerns, and challenges.
Abstract:
New software platforms use modern information technology, including full-featured web sites and mobile apps, to allow service providers and consumers to transact with relative ease and increased trust. These platforms provide notable benefits including reducing transaction costs, improving allocation of resources, and information and pricing efficiencies. Yet they also raise questions of regulation, including how regulation should adapt to new services and capabilities, and how to correct market failures that may arise. We explore these challenges and suggest an updated regulatory framework that is sufficiently flexible to allow software platforms to operate and deliver their benefits, while ensuring that service providers, users and third parties are adequately protected from harms that may arise.
It appears that the potential and role of government in regulating these services is to provide sustainability of these services (whether through private or public, one or many players); this means long-term and consistent reliability and wide-spread and fair access. The role of government is to look beyond the capitalistic systems upon which corporations operate and look beyond the short-sighted-ness of individual citizens, as a way to protect it’s people.
Regulation can usefully set minimum standards to protect consumers who fail to recognize potential problems and to protect against problems prior consumers could not notice… Many long standing transportation requirements address aspects of safety that customers would struggle to access even after a ride–for example, requiring vehicle inspection with heightened frequency or rigor.
What is role of statistics and control theory in these questions of providing assurances to the consumer?
Citation: Edelman, Benjamin G., and Damien Geradin. “Efficiencies and Regulatory Shortcuts: How Should We Regulate Companies like Airbnb and Uber?” Harvard Business School Working Paper, No. 16-026, September 2015.