Collaborative Consumption: What it is, How it Works

What Is Collaborative Consumption?

Collaborative consumption is the shared use of a good or service by a group. Whereas with normal consumption an individual pays the full cost of a good and maintains exclusive access to it, with collaborative consumption multiple people have access to a good and bear its cost. A common example is ridesharing, whereby multiple people have access to transportation and pay for it, not just the owner of the car.

How Collaborative Consumption Works

Collaborative consumption is a form of sharing. Peer-to-peer renting, for example, has been used by societies for thousands of years and provide a group of individuals with an asset without requiring each person to purchase it on his or her own. It allows consumers to obtain resources that they need, while also allowing them to provide resources that others need and are not being fully utilized.

Collaborative consumption is considered part of the sharing economy because it means that individuals rent out their underused assets. This approach is most likely to be used when both the price of a particular asset, such as a car, is high and the asset is not utilized at all times by one person. By renting out an asset when it is not being used, its owner turns the asset into a sort of commodity. This creates a scenario where physical objects are treated as services.

For example, Airbnb created an online platform that lets owners of homes, apartments, and other dwellings lease or rent out their space to others. This might be done for residences that the owner only occupies part-time or during periods they intend to be away for an extended time. Individual renters might not be able to afford such a residence themselves, but by dividing the costs across multiple renters who occupy the space at separate times, the residence becomes affordable.

Special Considerations: Legalities

Critics of collaborative consumption argue that the informal nature of such arrangements allows individuals to bypass local regulations that businesses offering similar services must follow. These businesses may have to pay licensing or other regulatory-related fees in order to legally operate. Those fees make their services more expensive than those provided by individuals who do not pay such fees.

Traditional hotels have challenged the legality of Airbnb rentals, for example, because those owners typically do not have to adhere to regulatory requirements of running a hotel or pay the associated operating costs. This outcry led to efforts to regulate or crackdown on rental operations like Airbnb.

Comparable legal challenges arose around ride-sharing services such as Uber and Lyft. The operators of taxi companies and limousine services contend that offering ride-sharing services was an illegal form of competition. The operations of Uber, for example, were blocked or limited in certain cities where local authorities sought to require the company to adhere to the same regulations that taxi and limousine services abide by.