Business E-Commerce

New Economics: Sharing Isn’t Free, and Price Gouging Isn’t Mean

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(Image via Shutterstock)

The pros and cons of the so-called “sharing economy” are getting plenty of press these days. Consider the diverse takes this week from MIT Technology Review, the New York Times, and the Kansas City Star.

In a Times report about workers who are finding “both freedom and uncertainty” in the contract employment trend, Natasha Singer explains how Navy veteran Jennifer Guidry attempts to help cover her family’s food and rent costs with popup gigs. Guidry offers taxi rides in her own car to strangers who ping her through one of three rides-haring apps, completes chores for customers who book her through TaskRabbit, and serves as private chef for Craigslist clients.

Flexibility, variety, and independence are all noted benefits of gig work. But Singer points out that, contrary to the notion that the entrepreneurial-minded are making “extra” income in their spare time on sharing economy gigs, people like Guidry, who lack any steady income source, are cobbling together unpredictable wages earned at unpredictable hours to survive. Singer calls them “microearners”:

“They often work seven-day weeks, trying to assemble a living wage from a series of one-off gigs. They have little recourse when the services for which they are on call change their business models or pay rates. To reduce the risks, many workers toggle among multiple services.”

One economist told Singer: “If you did the calculations, many of these people would be earning less than minimum wage. You are getting people to self-exploit in ways we have regulations in place to prevent.”

Still, “peer marketplaces democratize luxury services,” Singer says, offering “a good deal for consumers.”

Not all consumers agree. MIT Technology Review contributor James Surowiecki explains how Uber implements “dynamic pricing,” which some customers see as price gouging. The rideshare company got bad press last year, for instance, when it multiplied it usual rates by six or more in Manhattan during bad weather.

But Surowiecki says consumers misconstrue the practice. Uber’s method is not so much about reeling in higher fees when services are in demand; instead it’s about increasing supply to satisfy all customers. He writes:

“When there are more would-be Uber passengers than available Uber cars, the company’s algorithm sets a price that balances supply and demand. Uber’s algorithm (which it has been refining since 2011) is the company’s greatest asset and most significant innovation, allowing it to find the price that will attract drivers—whom, as independent contractors, it can’t order onto the road—without alienating customers.”

Surowiecki points out that dynamic pricing has been around a long time, but is usually presented by industries with limited supply–airlines, hotels, and rental car agencies, for instance–as discount pricing when supply is high, instead of surge pricing when supply is low. Reframing the practice could be all it takes for Uber to get back in favor with sharing economy fans.

And then there’s someone taking the term “sharing” literally. What’s a potential Uber customer who doesn’t want, or can’t afford, to pay? A hitchhiker. In Lawrence City, Kansas, Jenny O’Brien has created an app to bring back the practice–long ago outlawed in her town–by taking the danger and mystery out of it. As the Kansas City Star’s Brad Cooper reports:

“O’Brien’s service fits neatly into ecosystem of the sharing economy. She’s trying to make use of one of the most wasted resources of all: car seats.

Nearly 80 percent of Douglas County residents drive to work alone. That’s a lot of empty cars that might be used to save gas, prevent more wear on the highway and preserve the planet from noxious fumes.

‘You can see all those cars driving by as potentially tiny little buses if we can just get people in the mindset to open their vehicles to others,’ O’Brien said.”

Sure, but what will it mean for drivers relying on gigs in the sharing economy?

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  • Mike Lynch

    I was glad to find your article. I’m curious to know who Singer was quoting:
    “You are getting people to self-exploit in ways we have regulations in
    place to prevent.” That’s a fantastic quote.

    Some things I found after an evening of research on Uber…

    “In order to make $75,000 a year driving for uberX in San Francisco, you’d
    have to work 3,000 hours per year, which is effectively a 58-hour work week,
    financial journalist Felix Salmon concluded.” (Source of quote:
    http://ow.ly/EE7Li)

    Uber CEO Travis Kalanick in a WSJ interview: “We’re at least doubling
    every six months. It’s probably more robust than that, but that’s good
    enough…That’s revenue. If you look at [the number of] trips, because we’re
    going into lower and lower-cost products, the growth on trips is like 5,
    6x.”

    Felix Salmon says: “In other words, in order to double Uber’s revenues,
    Kalanick has to increase the number of trips taken by a factor of 5. And he
    probably has to increase the number of uberX drivers by an even greater
    factor.” (Source of quotes: http://ow.ly/EE8xZ)

    That’s a lot more than a 40 hour week to make the $75K/year that Uber claims in
    their advertisements to drivers. Maybe to attract the number of drivers they
    need to maintain their aggressive growth rate they will give out a little more
    gravy, but so far it doesn’t appear necessary. Nobody is calling them out on
    their claims, so I guess the algorithm is working.

    There are many hidden costs and potential unintended consequences in the
    ‘sharing economy’–contractors often do not factor in “fleet maintenance
    costs” or self-employment taxes; government and cities struggle to keep
    track of income which creates a significant uncollected tax liability, which
    means the public is effectively subsidizing Uber’s revenue and rides; and there
    are “task switching” and opportunity costs to part-timers who forgo
    full-time employment.

    In my reading I see a great deal of focus on the ‘business model’ and
    regulatory fixes, but not a great deal of focus on protecting driver/workers
    from exploitation and maintaining a healthy work life balance. I enjoyed your
    article for that.

    The jury is still out on the ‘sharing economy,’ and I am wary. Tonight I was
    focusing on Uber because of the media flare-up, and I don’t want to throw all
    of the services into one basket. However, for these services to be successful,
    I feel like “microearners” need to have a much better understanding of
    microeconomics, and there are macroeconomic impacts that need to be addressed
    which may require policy and legislation. At the very least drivers/workers
    need to be able to accurately assess and negotiate their wages, so perhaps
    truth in advertising would be a good place to start.