Uber, Airbnb, & Regulation

By Nikita Singareddy

Ever heard horror stories about an Airbnb stay gone horribly wrong? Ever look at a bad exam grade and wonder if “Uberdriver” is a viable (or secure) career path? On Feb 24th, Simon Schwartz and Jon Kroah moderated a discussion on just how responsible “peer to peer” companies should be for the well-being of their customers, and whether these companies are flouting the system or on the verge of creating a better one.

A shared economy (also known as peer to peer or collaborative economy) is a socio-economic system built around the sharing of human and physical resources (e.g., your car, your apartment). The best known “P2P” players are Uber (founded 2009, worth $41 Billion) and Airbnb (founded 2008, worth $10 Billion), who both utilize the same business model: An IT-Platform is developed, built and maintained by a third party but the function of the platform is to enable sharing economy activities. This is known as a “two-sided market.”

At the meeting we discussed the benefits of a shared economy which included revenues passing through the shared economy directly into people’s wallets. Some members voiced that the sharing economy facilitates the use of underutilized resources, especially to the benefit independent workers in the labor force like teachers, minimum wage workers, and people with multiple jobs. However, some attendees worried that Airbnb and Uber bypassed laws and restrictions that are state/nationally mandated for hotels/motels and taxi services. For example,  the New York State AG released a report that concluded 72% of Airbnb rentals violated state zoning laws or regulations, specifically involving breaches of short term leases. Moreover, Airbnb hosts face no inspections. Uber, moreover, shirks any responsibility in the suitability, legality, or ability of their third party transportation providers when peoples sign the User Agreement. Existing insurance policies also don’t offer the flexibility to protect people involved in the sharing economy, primarily because the activities they’re engaged in can straddle the line between personal use and commercial activity.

But Uber and Airbnb have responded to their critics as well. Uber recently launched its Rideshare commercial insurance plan which includes: $1 million of liability coverage per incident, $1 million of uninsured/underinsured motorist bodily injury coverage, and $50,000 of contingent comprehensive and collision insurance. Airbnb in October announced a secondary insurance product that is free for hosts and in some cases offer coverage up to $2M. Amsterdam became the the first “Airbnb-friendly” city while Paris passed a law allowing city inspectors to check rental homes and Berlin banned the company entirely. People also worried about “Price Surging,” Uber’s algorithm to detect changes in supply-demand and change prices  accordingly. As a result, fares frequently soar during times of peak demand—for instance, some riders on New Year’s Eve 2011 paid roughly 7x normal fares, and fares also increased during the recent hostage crisis in Sydney when people fled the area. Some claim these rates can get unethically high; Uber recently pledged to cap rate hikes during disasters and donate 20% of revenues from those rides to the American Red Cross.