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Tread Lightly on Regulating the Sharing Economy When calls for consumer protection come from competitors, policymakers should be cautious.

By Scott Shane

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Feeling threatened by online businesses like Airbnb, Homeaway, Lyft , and Uber that allow people rent underused assets to peers, the taxi and hotel industries have called on local regulators to impose more health and safety rules on micro-entrepreneurs who comprise the "sharing economy." Policymakers shouldn't respond. The hotel and taxi industries are using "consumer protection" as a guise to keep more efficient competitors from cutting their profits.

The Internet has sparked the growth of the "sharing economy." While people have always rented their stuff to others, the Internet allows them to reach more potential customers faster than ever before. Renting out a spare bedroom in Des Moines to a vacationing German couple or driving someone from downtown Brooklyn to midtown Manhattan for a meeting is a lot easier now than when the classified section of the newspaper was the bleeding edge technology.

Companies like Airbnb and Uber allow owners to use their assets more efficiently, to the benefit of all. Just like it is more efficient for two steel companies with excess capacity to step up production than it is to add a new steel plant to the mix, it is more efficient to use a town's vacant bedrooms for visitors than to build more hotel rooms.

Related: What Nannies Teach Us About Smart Regulation

Improved efficiency benefits both asset owners and renters. The owners get some cash for allowing others to tap their underused stuff and the renters get access to the assets at a lower cost.

Take your kid's bedroom as an example. With junior away in college, his room would sit vacant, except for school breaks. Rent it through Airbnb and you can generate some cash from it. Because the fixed costs of your house have already been paid for, you can rent junior's room for less than the price of a hotel, saving vacationers money.

The hotel and taxi industries have responded to competition from the sharing economy by calling on local governments to protect the health and safety of unsuspecting consumers who stay in micro-entrepreneurs' homes and ride in their cars. For example, the Hotel Association of New York has asked the city to enforce a rule prohibiting rentals of less than a month by owners not living on site. Several cities have responded to pressure from taxi companies by limiting the quantity of ride-share cars; by prohibiting drivers from picking up passengers on the street; and by barring immediate pick-up of passengers.

Related: Why Americans Don't Want to Start New Businesses

While regulators should protect consumers from harm, they need to tread lightly. The hoteliers and taxi companies calling for more oversight of lodging and transportation micro-entrepreneurs aren't really worried about the health or safety of consumers. When competitors call for the protection of consumers, they are usually worried about their own hides. If consumers were concerned about their health and safety, they would ask regulators for protection.

Unless consumers tell regulators that the rooms they are renting or the cars in which they are riding are unclean or unsafe, then regulators ought to let the market operate. The gains of the sharing economy outweigh the costs. Sure some taxi drivers and hoteliers will lose out to competition, but ordinary Americans will be able to make more efficient use of their assets. Holding back the growth of the sharing economy to protect existing businesses against competition would reduce economic efficiency and be bad public policy.

Related: Government Shuts Down 11-Year-Olds Cupcake Business

Scott Shane

Professor at Case Western Reserve University

Scott Shane is the A. Malachi Mixon III professor of entrepreneurial studies at Case Western Reserve University. His books include Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live by (Yale University Press, 2008) and Finding Fertile Ground: Identifying Extraordinary Opportunities for New Businesses (Pearson Prentice Hall, 2005).

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