The legitimacy of sharing economy has been challenged due to concerns and issues of the sharing economy businesses’ socially irresponsible practices. We comprehensively review concerns about sharing economy regarding regulatory/legal issues, tax/labor issues, consumer concerns, social inequality, politics and lobbying, economic/societal impact, and notion of sharing. We then further discuss how such issues impact pragmatic, cognitive, and moral legitimacy of sharing economy, followed by the discussions about how to manage challenged legitimacy (e.g., through more effective CSR communication).
Regulatory and legal issues
The growth of the sharing economy has attracted attention from governments, regulators, and industry incumbents. Government regulators recognize the benefits of the sharing economy, such as lower prices for consumers, flexible employment and extra income, better use of idle assets and new forms of business, better consumer experience, and the building of trust between consumers and businesses. However, they also recognize abundant problems, including income instability and fewer benefits than traditional jobs, lack of company oversight and untrained workers posing a danger to consumers, privacy dangers arising from collection of huge amounts of personal information, and a failure to get services to poorer consumers who lack smartphones or internet access [
36]. Government efforts to integrate sharing economy businesses into existing regulatory frameworks could cause problems for Uber, Airbnb, and Lyft in regard to taxation, disability rules, worker classification, and consumer safety.
The issue arises that the regulations governing business practices, standards, and employee classification are outdated relics of the industrial era where the standards were meant to protect workers from factory exploitation [
37]. Today, many workers work remotely as free agents and up to 90% of workers in the USA want more freedom in their choice of employment [
37]. One estimate states that up to one third of American workers are in some way free agents (whether part-time or full-time, primary or secondary, etc.) [
37]. Identifying how big this group is can be challenging as different definitions encompass full-time and part-time free agents, 1099 workers, freelancers, employers, etc. This diversity of types of free agents makes it cumbersome to draft new laws regulating businesses that employ free agents.
The three industry giants of sharing economy (i.e., Lyft, Uber, and Airbnb) employ half a million of the 2.7 million Americans in the sector [
36]. But these companies, particularly Uber, identified their workers as independent contractors and tried to educate stakeholders on the benefits of the sharing economy until stakeholders realize the benefits themselves [
38]. Both approaches worked when the players were small but are no longer feasible solutions. In response, California has now ruled that drivers are employees, not independent contractors. Further, Uber is now banned in the Hamptons area. Additionally, courts in many European countries have found that ride-sharing by non-professional drivers is illegal.
Regulators face the problem that data are necessary to make good policy decisions, but data about sharing economy are limited and hard to come by [
36]. For instance, Airbnb refuses to release where its rental listings are located, thus limiting the power of local governments to regulate them [
39]. The data that are available on the impact of the sharing economy on American workers and businesses has been compiled by special interest groups (often with questionable credibility), not unbiased government analysts [
37]. There is no government-commissioned reporting on this sector to date.
Specific business practices of sharing economy also raise concerns about violations of anti-trust laws. One example is Uber’s surge pricing, which Uber characterizes as an adaptive pricing model that is designed to equalize supply and demand through raising prices where there is high demand and few drivers [
39]. Customers are notified when surge pricing is in effect. However, research shows that it is an artifice of Uber’s active management, creating a “mirage of the marketplace,” not actually connected to fluctuating supply and demand [
39]. Uber’s model raises concerns about violation of anti-trust laws because Uber drivers are independent contractors but agree on pricing; therefore, the pricing could be interpreted as collusion or price fixing [
29]. Even further, some argue that these firms are attempting to create monopolies through such price fixing and cost advantages due to regulatory differences [
40]. Uber faced a lawsuit in 2013 when New York taxi drivers filed for $100 million in reimbursement damages for lost wages caused by Uber’s cost advantages [
41]. However, this lawsuit was thrown out by another judge recently because it was deemed “unfair.” Despite its few encounters with litigation, Uber generally gets away with ignoring regulatory frameworks by accumulating vast sums of money for lawyers and lobbyists [
41].
In the USA, there is no umbrella regulation affecting the sharing economy yet; rather, there is a patchwork of local ordinances and court rulings with disparate implications for each region [
37]. Regulatory issues become worse in the context of global business. Other countries, such as China, are proactively establishing a national framework to make sharing economy a competitive business model. Such practices could endanger the success of US sharing economy players abroad [
37].
For example, courts in many European countries have found that using non-professional drivers is illegal. South Korea banned the Uber app, hoping to encourage a locally produced competitor [
38]. Uber is banned or heavily restricted in Belgium, France, Germany, Italy, and Spain due to taxi drivers petitioning the courts [
29]. In California and Florida, courts have ruled that Uber must treat its drivers as employees and reimburse them for work costs and/or provide unemployment [
29]. Uber drivers in the UK are petitioning for the same benefits. Airbnb has faced international challenges as well. The mayor of Paris set up a team of 20 agents to crack down on illegal room-sharing. This investigation led to 20 owners of 56 apartments incurring heavy fines for illegal room-sharing [
38]. Catalonia in Spain is investigating how illegal room sharing affects tourism, pollution, and convenience stores [
38]. In sum, regulatory and legal issues are growing across countries due to some malpractices of sharing economy businesses. Consequently, negative sentiments about sharing economy’s legitimacy, particularly cognitive legitimacy, have increased.
Tax and labor issues
Another major issue for sharing economy’s legitimacy is driven by billions of dollars in missed tax revenue. The fees that sharing economy companies like Uber take are seldom taxed in the country where the transaction takes place, as the home offices are sheltered in tax haven countries such as Ireland. For instance, Uber processes transactions in the Netherlands and has its IP assigned to a tax haven in Bermuda, leaving less than 2% of its revenues taxable in the USA [
42]. Airbnb collects up to 15% of the fee charged by room renters and then shelters it in Irish tax havens that allow it to operate on terms that are not available to its Hotelier competitors [
42]. In Australia, Airbnb operates the Haines’s Rental group, but the payments are automatically processed in Ireland. While Airbnb Ireland pays a small fee to its Australian subsidiary for in-country marketing (which is then taxed), the majority of money earned in Australia goes untaxed. At the very least, sharing economy players have alerted governments of the need to modernize taxation rules and combat companies shifting profits to tax havens.
An important labor issue is the classification of workers of sharing economy firms. Classifying these workers as contractors instead of employees brings up a myriad of issues: these workers have no minimum wage, have no ability to bargain, are unprotected by unemployment insurance, and receive no overtime pay. Unfortunately, labor concerns are prevalent among sharing economy companies that claim to liberate workers, particularly Uber. Because Uber calls its drivers independent contractors, Uber is not responsible for compensating them for insurance and benefits. Drivers receive no employer contribution for Medicare or Social Security, nor any unemployment insurance, and are responsible for their own expenses. Also, UberX, its cheapest service available to riders, has cut fares to $1.10 per mile and $.21/min under 11 mph to compete with Lyft [
43]. Uber also takes 20% of those earnings. However, an Uber driver’s total costs (including insurance, gas, depreciation, and repairs) averages to $.56 per mile. This pricing barely leaves room for profit.
Additionally, multiple cases have been reported of violence against drivers, sometimes by passengers, and such injured workers are unprotected because of their employment status [
29]. Uber states that it removes drivers with bad ratings, but there are reports that its executives remove drivers for personal and capricious reasons [
39]. More savvy drivers have found that they do not make any money for short trips due to congestion and expenses and therefore avoid short trips. However, a low acceptance rate can cost them their job as Uber fires them if they go below a threshold [
44]. Thus, drivers either lose money on a great number of rides or risk losing their extra source of income. Consequently, many drivers quit within a year. In sum, Uber’s business model leaves drivers no recourse as it pits them against each other, discouraging collective action or forming a union for wage purposes. These same issues are also common in other countries.
Consumer concerns
Sharing economy was originally welcomed because of its convenient access and cheaper prices for services such as taxi rides, benefits which contributed to pragmatic legitimacy [
5]. However, critics have challenged sharing economy services because of incidents that demonstrate the risks and lack of safeguards for customers [
45]. For example, as a way to protect consumers, Uber provides users with an opportunity to rate drivers on its mobile app, but these ratings are the lightest form of consumer protection [
46]. In 2017, a passenger who claimed that she was raped by an Uber driver in Kansas City filed a lawsuit against Uber, alleging that Uber ignored previous warnings that the driver did not fit with the company [
47]. Similar rape incidents happened in India. In another case, an Uber driver was suspected of killing six people in Kalamazoo, Michigan, in 2016 [
48]. In August 2017, a passenger in Florida was punched by his Uber driver during an argument about the fare and later died from the injuries. Sexual harassments by their drivers also led to two lawsuits in California and Kansas City [
49]. According to one lawsuit,
Despite consistently marketing its driver background check process as “industry leading” and “more rigorous than what is required to become a taxi driver” – in reality Uber’s application process is designed for speed, not safety [
49].
For Airbnb, houses rented out by Airbnb do not have to meet any health or safety regulations. By comparison, hotels are held to stringent safety standards. Although safety of Airbnb rentals in the USA is less of a worry because of local ordinances (and structural and safety standards for condos and apartments), there is still worry for private residences and travel abroad. For instance, a Canadian woman who visited friends in Taiwan in 2013 stayed in an Airbnb rental which had a leaking water heater and lacked proper ventilation, leading to the woman’s death from carbon monoxide poisoning [
50]. In another incident, two people rented a house through Airbnb for Thanksgiving, but rope attached to a tree at the rental collapsed and fell on one person’s skull, killing him. This accident could have been avoided at a B&B where a routine safety check, as required by law, could have revealed this danger. Juxtapose these stories with the fact that Uber and Airbnb tout their rating systems as a key benefit to consumers. But are they really? Furthermore, some critics are skeptical of Uber’s rating algorithms and perceive Airbnb’s rating system as intentionally misleading in order to misrepresent the level of quality [
39].
Politics and lobbying
Airbnb and Uber appear to be heavily engaged in lobbying and PR. Legislators and regulators are having trouble deciding how to handle these new firms, and it seems Airbnb and Uber have more say in regulatory efforts than industry competitors do [
39]. Difficulty in regulation is being exacerbated by a belief that such technology platforms are imminent/inevitable in a technology-driven future. Uber tried to quash New York mayor Bill De Blasio’s effort to limit the number of cars on the road in 2015 [
39]. In October 2015, Airbnb killed proposition F, an initiative to restrict short-term rentals, in San Francisco. It outspent its opponents by a ratio of 100:1 [
39]. Additionally, both Uber and Airbnb are in no rush to go public for maximum flexibility; they provide no prospectus, they do not have an independent audit, and no one can see their accounts.
While Uber and Airbnb are becoming masters in leveraging big data analytics and convincing people that they know best how to improve efficiency and safety with this data [
39], these firms control the narrative and only release figures that favorably portray them. Uber reported that its drivers could earn an average salary of $90 k/year, but did not mention that this figure was based on the salaries of drivers in New York City, which has the highest wages of any city it operates in. Additionally, the fine print shows that this figure applies only to drivers driving over 40 h per week and does not include expenses (mileage, gas, repairs, insurance, etc.). Airbnb similarly released a press release claiming that “quantitative evidence shows hosts are good for NY.” It reported that Airbnb supported 950 jobs in the outer boroughs and 82% of its properties are outside of mid-Manhattan [
39]. However, when the New York Attorney General’s office examined the data, it was found that 97% of Uber’s revenue came from just two of the five boroughs (Brooklyn and Manhattan) [
39]. The claims are delivered in a confident tone with impressive figures but are misleading at best.
Airbnb has tempted academic researchers with access to its internal data. While it does not overtly commission researchers, the allure of exclusive access likely makes it difficult for researchers to maintain neutrality [
39]. Once the researchers write their papers, Uber then uses those papers to refute claims by opponents. It “recruited” the former White House Economic Advisor Gene Sterling to write about its impact on housing prices and Princeton economist Alan Krueger to co-author a paper with Jonathan Hall, Uber’s head of policy research, on driver income (the paper left out drivers’ expenses, stating that the data was not available). Sometimes, Uber’s reports are released in full but without the accompanying data, and other times, the reports are kept internal and only a press release is available [
39]. Overall, the actions and reports of sharing economy giants do not exhibit transparency or considerations of their stakeholders. These actions lead to questions about these companies’ level of responsibility and legitimacy.
Economic and societal impact
In many Western economies, big businesses and governments have not adequately invested in productivity, leading to low productivity and stagnating wages [
42]. Sharing economy originated from economic recession but it currently operates on the periphery, not the center, of industry and disrupts traditional industries. It may increase competitions, but its introduction and disruption do not increase demand. Thus, some people argue that sharing economy creates little real economic impact—just a shift in who profits [
3]. This argument and other evidence suggest that in the USA, workers are being pushed into this part of the economy because of stagnating wages and decreased standards of living. Further, these companies are trying to turn many other sectors in the economy into this form of “sharing,” forcing incumbent players to compete on an unfair playing field regarding tax and regulatory requirements [
42].
While sharing economy platforms make sense at the individual level, they create some macroeconomic concerns. For instance, these firms are changing communities. A report by Coldwell Banker Commercial told real estate investors around the USA that renting properties to Airbnb renters had a rate of return well over two times higher than renting to long-term renters, leading investors to prefer Airbnb renters and turning an already bad housing shortage into an ever more urgent crisis [
44]. Airbnb is at the center of a set of cases against landlords in San Francisco where landlords have evicted their tenants in order to list their properties on Airbnb at elevated rates. Housing costs in San Francisco have been skyrocketing since the introduction of Airbnb, while Uber has added 10,000 more cars to London’s already congested roads [
40]. Amid worries about growing housing prices and a shortage of housing (only exacerbated by Airbnb’s presence), Airbnb made a compromise with San Francisco lawmakers to cap the number of short-term rentals and have all their associates register with the city. However, only 20% of the 7000 associates did. Airbnb claims that it cannot be held responsible for illegal renting, citing the Communications Decency Act [
55].
In the case of Canada, where the housing market has been on fire for about a decade, Airbnb is exacerbating the problem of housing shortages because many rental properties are being converted for Airbnb rentals leading to the eviction of hundreds of families. Investors do conversions of properties for Airbnb because of rising housing prices (and so want to cash in on huge capital gains). Airbnb encourages owners to rent their houses to short-stay visitors rather than long-term renters, causing rental prices to skyrocket and making it nearly impossible for renters to afford housing [
41]. Hotels are also experiencing reduced demand, endangering profits. Airbnb causes problems for short-term renters as well. In Melbourne, Australia, short-term stayers are three times more likely to have complaints than long-term residents. Unfortunately, the remedies for complaints (at least in many Australian states) are more geared toward long-term residents. In other words, few city ordinances exist to deal with complaints from short-term stayers [
46].
Critics also doubt whether ride-sharing platforms can create good jobs, especially in the case of Uber, which avoids regulation (sometimes even ignoring it) and shift risk onto the workers (all the while not providing any contractual obligations) [
40]. Uber and Lyft drivers now outnumber taxi drivers in many major US cities. They are becoming a serious contributor to congestion [
39]. Uber has been blamed for slowing traffic and increasing congestion in Manhattan, and meanwhile, taxi drivers earn less and Uber drivers are dismayed by their equally dismal net earnings [
41,
46]. Additionally, public transit systems have been threatened by ride-sharing companies like Uber and Lyft poaching passengers [
44]. Public transit systems require a precise equation that balances how to move people around the city. Ride-sharing services provide transportation to and from more remote places (where they incur a loss) by offsetting this cost with heavy use on busy areas (where they make their gains). However, these companies target the same segment of the population that public transit systems do. This passenger poaching makes it nearly impossible for public transit systems to be economically sustainable; potentially, the whole system could collapse, leading to disastrous reverberated effects. Additionally, less use of public transportation could negatively affect the environment as the benefits of shared transits (e.g., lower carbon emissions) are lost.
Is sharing really sharing?
Maybe one of the most important criticisms and the most challenging legitimacy issue is questions about its terminology: whether sharing economy is really sharing. Some argue that the sharing economy is less about sharing than selling because it is no different than traditional capitalism; it is only packaged with environmental, ethical, and moral claims [
3]. Also, sharing economy allows customers to access unused assets at a price and make economic transactions for access with little personal interaction, so the phenomenon could be called access-based consumption rather than sharing [
18,
25]. Others argue that sharing economy does nothing to change the traditional forms of ownership or move users into a more cooperative world. Instead, sharing economy commodifies and monetizes traditional forms of peer interaction and encourages a more individuated approach to the world.
For Airbnb, the initial idea of sharing extra bedrooms is good, but the idea has been converted to commercial businesses, particularly in big cities like New York and San Francisco. For instance, in New York City, many hosts control multiple listings and over 200 properties in some cases [
44]. As mentioned earlier, the academic realm has no consensus on the definition of sharing economy, possibly because of differing interpretations of the act of sharing [
10]. Many definitions of sharing economy do not fall into strict concepts of sharing. Some prior conceptualizations (e.g., Belk [
20]) assume reciprocity and joint possessions, but these definitions do not truly reflect the practices of sharing economy services such as Airbnb [
23]. Belk [
20] distinguishes prototypical characteristics of sharing and commodity exchange. Later, Belk [
16] identifies commercial car-sharing businesses such as Zipcar and for-profit home-sharing organizations like Airbnb as pseudo-sharing. According to Belk [
16], such sharing is not prosocial sharing because “sharing includes voluntary lending, pooling and allocation of resources, and authorized use of public property (sharing), but not contractual renting, leasing, or unauthorized use of property by theft or trespass (pseudo-sharing).” Ozanne and Ballantine [
56] argue that sharing behaviors reduce consumption of specific brands or product categories, and thus, they are an alternative to consumption: anti-consumption. Additionally, many of the initial startups that partook in sharing economy have quit operations or changed directions. Many of those who have stayed have ended the person-to-person narrative as a marketing technique and have begun to compete on price. Thus, the sharing economy has evolved to look less unique and revolutionary, a development which deepens the concerns about its legitimacy.
These comprehensive reviews of concerns about sharing economy are summarized in Table
1.
Table 1
Summary of controversies and challenged legitimacy of sharing economy
Regulatory and legal issues | • Employee identification (e.g., Uber identifying their workers as independent contractors • Limited release of data for policy decisions (e.g., Airbnb refusing to release rental listings) • Possible violations of anti-trust laws (e.g., Uber’s surge pricing model) |
Tax and labor issues | • Missed tax revenues (e.g., Uber, Airbnb) • Poor employee treatment and working environment (e.g., Uber’s workers with lack of protections and violence against drivers) |
Consumer concerns | • Incidental situations with risks and lack of safeguards for customers (e.g., rape and murder allegations, unmet health and safety regulations) |
Social inequality | • Imbalanced distributions of gains across those with capital and without capital • Racial inequality from discrimination |
Politics and lobbying | • Lobbying and PR to legislators and regulators • Allure of exclusive access to internal data offered to academic researchers |
Economic and societal impact | • Increasing competitions rather than increasing demand • Macroeconomic concerns (e.g., changing communities and worsening living situations in concentrated service areas) • Reduced use of public infrastructure that will adversely affect the benefit of shared burden |
Is sharing really sharing? | • Questions about sharing economy whether it is no different than traditional capitalism in the end (e.g., commodifying and monetizing traditional forms of peer interaction) |