In less than a decade, so-called sharing-economy businesses have reshaped the ways many Americans live their lives.
Car-hailing apps like Uber and Lyft have altered the transportation landscape in many cities, and created a new form of part-time work for people who would never have previously imagined themselves as cab drivers. And Airbnb and other short-term rental networks have permanently altered the vacation lodging industry and left impacted real-estate markets in many tourist-friendly cities.
But while fast-growing tech companies regularly roll out new features and terms of service for both consumers and providers, analysts say state, local, and federal regulators have at times struggled to keep up with their rapidly shifting business models, algorithms, and indirect effects on the places they operate and the people they serve. Some of that’s due to the inherently slow-moving nature of regulation: Agencies are often required to carefully gather information and public feedback before moving to create new rules.
But sharing-economy businesses also have an inherent information advantage, tracking their customers and choosing what information to share with users, regulators, and the public. That knowledge gap can be used to manipulate consumers and evade government scrutiny, argue the authors of a new research paper.
“Much activity is hidden away from view, but preliminary evidence suggests that sharing-economy firms may already be leveraging their access to information about users and their control over the user experience to mislead, coerce, or otherwise disadvantage sharing-economy participants,” write Ryan Calo, an assistant professor at the University of Washington School of Law school, and Alex Rosenblat, a researcher at the Data and Society Research Institute.
The paper also comes at a time when Uber, likely the most prominent sharing-economy business, has come under increasing scrutiny both for management issues as well as for a tool it developed called Greyball, which blocks ride requests from users thought to be officials investigating its compliance with local laws. The system also sought to mislead users and drivers with “ghost cars,” a phenomenon that Rosenblat reported on in 2015. At the time, Uber attributed the issue to “a visual effect.” Officials around the world have reportedly called for legal investigations, while Uber has pledged to stop using the program to evade regulators. Still, “given the way our systems are configured, it will take some time to ensure this prohibition is fully enforced,” Joe Sullivan, Uber’s head of security, wrote.
“I think the recent news about Uber’s Greyball system is a stark demonstration of the inadequacy of current regulatory approaches,” says David Robinson, a principal at the tech policy consulting firm Upturn. “I think it’s a real strong case in point that the market for rides on Uber or Lyft is controlled and structured by the platform in a way that is not publicly observable.”
Uber has previously openly sparred with regulators to avoid releasing data, refusing to apply for a California self-driving car test permit that would have required it to share data on the behavior of its vehicles, and fighting New York City taxi regulators over trip log-sharing rules. The company’s not the only sharing-economy business that’s made such pushes for secrecy: Local regulators have complained in legal filings that it can be difficult to tell if particular listings on Airbnb meet local regulatory requirements, though in recent cases the service has agreed to share information with local authorities and enforce permitting rules.
In many cases, companies like Uber are the only ones in possession of the data that would be needed to determine if their platforms are behaving fairly—in Uber’s case, only the company has the information to verify it applies price increases consistently across passengers, or correctly times how long drivers wait for passengers before canceling a trip, or properly measures the rate at which drivers accept ride hails, Calo and Rosenblat argue in their paper.
“When drivers try to contest the fact that Uber didn’t pay them, they get these kind of bureaucratic auto-replies that didn’t really address their problem,” Rosenblat says.
Uber and Airbnb did not respond to a request for comment about the study. In an emailed statement, a spokesperson for Lyft denied that the company does anything to mislead customers.
“Millions of people across the country choose to participate in the on-demand economy every day,” wrote Lyft senior policy communication manager Chelsea Harrison. “To imply that they are being misled or coerced simply ignores the facts. Whether it’s much-needed extra income or a safe ride home, people like the benefits they receive from having access to modern options like Lyft.”
The Federal Trade Commission does have the authority to request data and algorithmic details from sharing-economy businesses, the authors argue. But so far, they say, the agency has taken more of a wait-and-see approach to the industry. Action it has taken would have been familiar in cases from decades gone by, like a $20 million settlement with Uber over claims the company inflated estimates of how much drivers could earn.
“Indeed, the FTC’s approach to Uber in 2017 is strikingly similar to its handling of the 1979 case involving the multilevel marketer Amway,” the authors write, referring to accusations at the time that Amway overstated how much its distributors could earn.
And in a November report on the sharing economy, agency officials mostly advocated a cautious approach to regulating the new businesses, which have also brought benefits to consumers through innovation.
“The report also considers how aspects of sharing-economy business models, including new technologies and trust mechanisms, may reduce the need for regulation,” the FTC said in releasing the report. “Citing advocacy letters from FTC staff to four jurisdictions on proposed or existing regulatory measures designed to regulate certain sharing platforms, the report stresses that regulation should address particular problems, but avoid actions that ‘are likely to hinder competition and are either not necessary or broader than necessary to achieve legitimate consumer protection and other public policy goals.’”
It inevitably costs some “political capital” for the FTC to engage in legal fights with businesses for information, says Robinson, so the agency is naturally reluctant to do so unless it’s fairly convinced it will find legal violations. And developers can turn out new software much faster than officials can produce new laws or regulations, making it increasingly difficult for regulators to keep up, he says.
“I’m glad that we have technology that changes faster than government, because that means there’s rapid innovation in the space, which is good,” he says. “But I do think that regulators are being left in the dust here.”
These information imbalances aren’t unique to sharing-economy firms—other internet providers like Google, Facebook, and Amazon all acquire vast amounts of data about their customers and use somewhat opaque algorithms to decide which content to promote, sometimes in ways that can have profound effects on other businesses. But the paper’s authors argue that sharing-economy businesses bring unique risks, with so many customers reliant on the platforms for their livelihoods and with customers typically providing the services with both data and money, unlike ad-supported services like Google and Facebook that effectively offer a free service in exchange for personal data.
“Consumers use Facebook or Google without paying literal money and so, arguably, they tacitly accept the value proposition that these companies will monetize their information and attention,” they write. “This mental model may not translate to the sharing economy, which can appear on first blush to have a simpler business model: They connect consumers to providers for a fee.”
It’s so far unclear whether the Trump administration will take a different tack toward regulating sharing-economy companies. The president’s populist rhetoric hasn’t so far translated into many pro-regulatory views, though his relationship with Silicon Valley has generally been more fraught than with other industries. Leaders of companies including Uber and Airbnb have been among prominent figures who condemned the administration’s immigration ban earlier this year, for instance. Trump frequently criticized Amazon during his campaign, and Republican leaders, including White House Chief of Staff Reince Priebus, have previously warned of the risks of prematurely regulating innovative businesses like Uber.
One possibility is that more targeted regulation will come from state and city officials, particularly in California, with its combination of progressive politics, familiarity with the tech industry, and ahead-of-the-curve regulatory structures. But it’s likely that some innovation and experimentation will be required on the part of regulators, too, to find the best way to find and address potential abuses by sharing-economy companies, Robinson says.
“None of us knows exactly what works as consumer protection in this new environment,” he says.