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Sharing Economy

Updated on January 31, 2024
Article byKosha Mehta
Reviewed byDheeraj Vaidya, CFA, FRM

Sharing Economy Definition

The sharing economy is a socioeconomic system structured around the sharing of resources and operates within the framework of capitalism. It involves various persons and entities establishing, manufacturing, distributing, selling, and consuming goods and services by leveraging IT to deliver data that allows assigning, distributing, and reusing surplus capacity.

Sharing Economy

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Sharing economies are vital as they allow individuals and organizations to generate revenue from underutilized assets. For example, underutilized resources like parked automobiles and extra beds can be rented out to other parties in a shared economy when they are not in use. Therefore, the exchange of tangible assets for services takes place.

Key Takeaways

  • The sharing economy entails peer-to-peer exchanges temporarily to exchange unused resources and goods or to foster cooperation.
  • This type of economy typically incorporates a digital interface linking buyers and sellers.
  • The sharing economy is quickly expanding and transforming but confronts considerable obstacles in the form of legislative ambiguity and misuse issues.
  • Tech has aided the rise of the sharing economy to its current level, and the pace will increase as internet connectivity increases.

Sharing Economy Model Explained

It frequently comprises a method of acquiring items and services that is distinct from the conventional commercial model, which entails businesses employing workers to make commodities that are subsequently offered for sale to customers. Instead, it encompasses the collaborative task of forming, producing, distributing, trading, and consuming commodities and services by various individuals and institutions.

These systems can take a range of forms. Still, they typically use IT to provide persons, businesses, non-profit organizations, and state agencies with data that allows allocating, sharing, and repurposing spare capacity in products and services.

The following are the two primary categories of sharing economy projects:

  1. First, an organization that does not seek to make a profit is typically modeled after the idea of borrowing bookstores wherein goods and services are supplied at no cost to customers (or sometimes for a modest subscription).
  2. Commercial, where a business offers a service to clients in exchange for monetary compensation.

Sharing is a solution that is now increasingly available on digital platforms, new businesses as the cost of resources have increased, and human understanding of the need to reduce our consumption has increased.

It is anticipated that the sharing economy will shortly have grown by multifold times. Over many hundreds of years, various groups have used various assets. However, the development of the internet and the use of big data have facilitated it for owners of assets and organizations interested in utilizing those resources to get in touch with one another. A few alternative systems’ names include share economy, collaborative economy, shared consumption, and peer economy.

Over the past several years, the sharing economy has expanded. It is now an all-encompassing notion that may refer to various business-related interactions that take place online. This can include company-based (B2B) meetings and other transactions.

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Impact

Sharing economy disrupts established business sectors. Such companies function leaner without stock and expense. Increased efficiency can benefit the distribution network, both partners and clients.

#1 – Transit

Uber’s success in transportation illustrates the destabilizing influence of the sharing economy. Uber and other ridesharing services are a secure, cost-effective replacement for public transit and taxis.

Using a smartphone app and system of vetted drivers, Uber meets customer travel needs and provides a better service than traditional ways.

#2 – Consumables

Ease, cost, and effectiveness are key buying criteria. As a result, sharing-based businesses dominate consumer products, so it’s not unexpected.

eBay is a peer-to-peer pioneer. Their ingenious method lets consumers trade things online and send them to their houses. As a result, customers may see items with specified pricing limits, warranties, and circumstances. This makes shopping easier, cheaper, and more effective.

#3 – Person-To-Person Services

Technical and human services best illustrate the shared economy’s implications. For example, lawyers, content writers, and electricians are examples of professionals and personal service providers. In a shared economy, this is called freelancing or short-term labor.

#4 – Medical

Many observers believe healthcare will be the next area to embrace the sharing economy. Share-based alternatives have minimized the downsides of traditional healthcare programs, prices, and capital in various industries. This will alter healthcare, from group visits to telemedicine.

Technology has helped the sharing economy grow and will accelerate as individuals and enterprises become more digitally connected. Collective demand dominates some industries, such as transportation, consumer products, and services, but the sharing economy may soon change many others.

#5 – Other

Millennials acquire fewer material possessions when approaching maturity than the working class. In addition, the rise of the digital and sharing economies has contributed to the expansion of the “minimalist” trend and made it much simpler to live a minimalist lifestyle.

Today, humans can accommodate the same quantity of content and even more onto the wallet-size machines that we fancifully still refer to as phones. Whereas Baby Boomers and Gen Xers might have had shelves and shelves dedicated to books, publications, and songs in their residences.

Examples

Let us look at the examples of sharing economy to understand the concept better.

Example #1

Let us take a hypothetical scenario of sharing economy business model. Sam faced difficulty during the COVID-19 pandemic working from home. He lacked motivation and had slow internet, which interrupted his efficiency. When he realized many others had the same problem, he developed a shared working facility named SamWork.

Its mission was to develop a professional working environment that motivates every member to achieve their goals via the use of unique architecture and the combined efforts of the local area. In addition, it offered various upscale structures specifically picked to assist its customers in achieving their quality goals.

In its Innovative commercial product or service, besides offering adaptable work areas, Sam provides cutting-edge technology that enables high levels of efficiency and uninterrupted communication.

Example #2

An article published by Market Express explores whether governments should support the “sharing economy,” which includes companies such as Uber and other non-traditional businesses such as Airbnb.

Even if a laundry list of benefits and efficiency results from the sharing economy, the struggle opposing state regulation persists. It is difficult to regulate it since it is unclear how such new firms should be categorized regarding the regulations already in place. These kinds of businesses do not conform fully to the standards that govern their industry, and as a result, they frequently violate the law in their business practices.

Advantages And Disadvantages

The sharing economy has seen a boom in recent years. Let us have a look at its pros and cons.

Advantages and disadvantages of sharing economy

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Advantages

  • Underutilized assets – Sharing some objects increases their use. Imagine you possess money for next month’s expenses. Peer-to-peer borrowing lets you lend for numerous days in less than a month. You’ll earn interest. Everyday savings and loans are rare at banks.
  • Reduce costs – You don’t require temporary goods. For example, instead of buying, rent a car or clothing. Platforms provide consumers access to products they can’t or won’t buy and use long-term.
  • Flexibility – You don’t have to work every weekday to get additional money. Online tasks may be done anywhere with internet access. You don’t need to meet face-to-face with coworkers; instead, use internet apps.
  • Better resource management – Freelancing networks have a global supply and demand. Market competition has increased.
  • Charge less – You can explore the pricing of more items and services. Developed ratings and comments on several sites assist you in determining the greatest quality and cost.
  • Greening – Sharing enhances product consumption. It decreases production and pollutants.

Disadvantages

  • Uncertain regulations – Regulators can’t keep up with business model development. So they launched consumer protection measures late. Outdated restrictions let certain company strategies avoid examination. It’s for cross-border platforms outside the user’s country.
  • Taxes unclear – The networks can function abroad. The tax office in client nations can’t easily identify users and raise taxes.
  • Lost allowances and perks – Freelancers don’t get coverage and incentives like regular employees. Whether you receive the project affects your revenue.
  • Reduce safety – Theft, security, and data protection threat are rising. No warranty providers or other users will comply. Users and suppliers trust the platform. This will lead to further deception and wickedness. Lack of regulation raises the chances.

Sharing Economy vs Gig Economy

The term “gig economy” refers to a type of labor environment in which work is organized around short-term jobs, agreements, and initiatives (also known as “gigs.” Workers are compensated on a project-by-project or task-by-task basis instead of being paid an hourly wage or a salary. The concept of individuals leasing out or “sharing” their resources is at the core of the sharing economy.

Frequently Asked Questions (FAQs)

What are sharing economy examples?

The sharing economy is expanding across many industries; transportation: vehicles, rental among people, and shared automobiles; Homes: sharing with others; and house sharing. In addition, increasingly sharing services like Funds lending systems, peer-to-peer coverage, rental items, food, and peer-to-peer education are also economy.

What is the principle behind the sharing economy?

The sharing economy, alternatively called co-creation or peer-to-peer share, is an idea that emphasizes the possibility — and even the desire — of people to lease or loan items instead of purchasing and owning them.

Which businesses are part of the sharing economy?

Lease of jewelry, modular, collaborative offices, the clothing trade, ride-sharing industry, sports equipment leasing, peer-to-peer loan service for technology, parking spot renting services, and skills training websites.

What are the advantages and disadvantages of sharing economy?

The sharing economy offers customers many advantages, such as the option to purchase from both small and large firms. The benefit of learning various shoppers’ perspectives through ranking and reviewing the platforms. Disadvantages are raised privacy and security issues among clients and independent freelancers, the possibility of scams and deception, and Insufficient Customer Retention is costly.

This article has been a guide to Sharing Economy and its definition. We explain its impact, advantages & disadvantages, examples, & comparisons with the gig economy. You can learn more about it from the following articles –

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