This is further proof that the effective management of government regulations and public perceptions is no less important to firm performance than establishing demand in the marketplace. Contributor Pinar Ozcan, Professor of Strategic Management – Warwick Business School.
In a recent study, we compared the approaches of Uber and Airbnb to their local environment. We discovered that Uber’s hard-line approach (at least historically) to gain customers and put pressure on the country or city’s administration through sheer size and market demand works less well than Airbnb’s softer approach of investing in the local environment through, for example, giving fire-safety education to hosts or promoting local businesses in the area.
However, our research shows one important caveat: as these sharing firms grow over time, other stakeholders, such as residents in areas of high Airbnb activity, may be affected negatively and increase pressure on the local or national government to regulate these firms more heavily.
In Barcelona, over the past few months, Airbnb similarly had to remove 2,500 ads from its platform, half of them because they were illegal rentals, but the other half, because they were in the most tourist part of the city.
Airbnb’s only choice is to co-operate with the local and national governments and make sure that all members on the platform abide by the rules in order not to lose access to that market completely. As sharing economy platforms grow, they disrupt existing industries, as we have seen in transportation, accommodation, and catering, and cause resistance from traditional incumbent producers whose resources they threaten.
This puts governments and municipalities between a rock and a hard place. On the one hand, the sharing of unused resources and the additional employment that these services bring are good for the society. On the other hand, as we see in the case of Uber, it is not easy to draw the line between a sharing platform and a transportation company that operates more cheaply due to legal loopholes, such as being categorised as an information systems company and not having to pay taxi fees.
As governments attempt to close these loopholes as quickly as possible to diffuse the pressure building from the affected parties, sharing platforms have no choice but to co-operate with them.”
