- Personal Finance
The Risks of Collaborative Consumption
What is Collaborative Consumption?
Collaborative consumption is the deliberate sharing of personal items, allowing everyone to utilize items more effectively. Collaborative consumption has been called the basis of the "sharing economy".
Collaborative consumption may be done by private individuals lending items in return for the right to borrow from others. Some private companies are making a profit from collaborative consumption, renting or facilitating private rentals of items. Collaborative consumption also takes place in social forums where people give away items they do not want to to others and with "libraries" of shared items that belong to the whole group.
Risks of Collaborative Consumption
- Those who consume collaboratively do so to reduce their costs. If someone borrows everything of value (cars, tools, consumer goods) and owns nothing of lasting value, they become a renter. The owner of valued goods who lacks cash can loan them out for collaborative consumption or sell it. The moment collaborative consumers lack the money to make payments or valuable items to trade, they are cut off from consumption.
- Collaborative consumption assumes idle capacity. If collaborative consumption rises, the demand for new products that can be shared will decline. If new supply drops off faster than demand, shortages will arise. Scarcity will drive up the price of collaborative consumption and is unlikely to be met by manufacturers who will be slow to re-enter a declining market.
- Collaborative consumption relies upon trust. If trust is lacking, trade stops. For example, if there are strikes and riots, it may not matter how much you offer to borrow a car, the lender won’t risk it getting firebombed. Toy-sharing saves money until an un-sterilized toy last handled by a child with strep throat comes into your home. Clothes swaps work well until someone inadvertently shares bed bugs.
- Collaborative consumption involves sharing items belonging to one person who shares it for money or an equal right to a similar good or service. Loaning a car to others only works when the owner has it back by 5 to get home. Constant late returns will result in the person withdrawing their car from the collaborative marketplace. Collaborative sharing of tools benefits everyone until one person assumes the right to loan the item to a third party who then damages it or loses it. If respect for the terms of the collaborative consumption agreement are breached often enough or the borrowers assert rights over the owners, the supply of collaborative items will drop as others fear losing control of their property.
- Collaborative sharing of goods is done on the availability of the lender. If there is any type of forced collectivization of goods, voluntary collaboration drops off or stops. If the needs of the owner become secondary to the rights of the community, resources fall back to private usage only, if only by hoarding. For example, nationalizing means of production causes hoarding of what is still in private hands while the “nationalized” goods fall into disrepair. Supply drops and isn’t replaced in equal quality or quantity. Failure to respect the property or rights of the owner results in the supply for collaborative consumption collapsing.
- Shared items are less likely to be treated as well as they will be treated by their owners. This is called the tragedy of the commons. In the case of collaborative consumption, the response to the tragedy of the commons is to stop sharing with others.
- Collaborative consumption can run afoul of the law. For example, AirBnB has been found to be illegal in New York City. Renting out your apartment unless you are also there is a violation of their extensive rules regarding hotels.
- If you loan your car out via various websites, hope that the person doesn't do drugs or drink alcohol while using it. You could lose your car to civil forfeiture at worst and pay the impound fees to get it back at best.
- Uber, Lyft and other ride-sharing applications are being cracked down on by cities and states that want to enforce the taxi monopoly. Hoboken, New Jersey, and South Carolina are issuing Uber drivers.