With Travis Kalanick stepping down as CEO of Uber this week, it is clear that the first half of 2017 has not been kind to Uber. Given that the global ridesharing company was once valued at nearly $70 billion, and that pitching startups as an “Uber for X” was once a practical necessity for accessing venture funding, it is understandable why some people are souring on the so-called sharing economy as a whole. Though Uber is a great example of how technology is changing the ways that people live and work, the economic trends that enable the sharing economy extend far beyond Uber.
Underpinning this new economy is the economic concept of “transaction costs.” Nobel Prize-winning economist Ronald Coase explains that transaction costs are what it takes to bring together buyers and sellers, exchange information, negotiate prices and enforce contracts.
The sharing economy is made possible by recent technological advances substantially lowering transaction costs. Peer-to-peer interaction over the Internet gives consumers and providers of goods and services the ability to quickly connect with and gather information about others.