Image Sourcce: Inc42

We live in interesting times. The owner of the biggest taxi business in the world doesn’t own a single taxi, and the fastest growing player in the hospitality sector doesn’t own a single hotel. All this has been made possible thanks to technological advancements, particularly in the services sector, and rapid developments and innovations in the field of data analytics. This revolution has obviously created ripples in the traditional markets, leaving several old players as well as policies redundant.

Consumer protection forms the premise of any government regulation concerning businesses. It ensures that the consumers are not cheated on account of the information asymmetry that exists between the two parties, and the businesses follow the law of the land. The emergence of these technological mediators or service aggregators has brought with it new technology enabled trust mechanisms, which have proved much more effective than the existing rules and regulations in providing high-quality services. These have increased information exchange between consumers and enabled a collective governance framework on the platform.

The aggregator business is based on sharing economy and Peer to Peer interaction model. The Internet has enabled people to realise gains they were unaware of; either by renting their assets or by getting services like cabs, rooms etc. at nominal costs and more importantly, without any inconvenience. This model realises user expectations by reducing the information asymmetries through crowd-sourcing and making information on past transactions inexpensive and transparent. This is being majorly done by collecting customer feedback through ratings and reviews. For establishing the credibility of the suppliers, the aggregators have taken steps like setting a minimum threshold of ratings, verification of licenses and providing access of their personal profiles to the consumer. Effective and efficient consumer – supplier interactions are built on the bedrock of a robust dispute redressal mechanism. Thus, the aggregators have made sure that services like 24×7 helplines, chat support system etc are at the easy disposal of the consumer. For the supplier, the aggregators have made the working environment more secure by introducing insurance schemes to safeguard their property and life. These new innovative mechanisms have come as a breath of fresh air for the dilapidated industries.

The services sector, in general, has always suffered on account of excessive and overbearing regulations. For example, the rules concerning taxis require the government to judge the character of the taxi driver before allowing him to ply on the road, or to ascertain whether he has adequate knowledge of the roads. There is also a restriction on the minimum number of fleet of cars that a taxi business needs to have. Similarly, a Bed and Breakfast (B&B) establishment has to complete a long list of checks before it can operate, including a mandatory minimum size of the room. These operations are regulated by periodic inspections. Such normative judgements should ideally have no place in policymaking.

Rigid rules and uniform service specifications across the industry restrict entry of new enterprises, and hence the industry suffers from efficiency losses. Consumer protection is ensured by allowing the consumers to “make a written complaint to the prescribed authority.” As opposed to this, Airbnb employs specific requirement system in case of room amenities, leaving it to the consumer to navigate the wide range provided. The reputation system employed by Airbnb continuously identifies and punishes underhandedness and weeds out troublesome people from the platform. Any inefficiency or misconduct leads to a negative change in ratings. As soon as the minimum threshold is reached, Airbnb first notifies the user, warns them and finally removes the user (host or guest) from the platform in case of continued non-compliance.

The regulations tend to be overly prescriptive or entirely prescriptive, while the state capacity for enforcement is limited. The differences between traditional suppliers and aggregators make it impractical to co-opt existing regulations. Moreover, the new hi-tech tools brought to the market by the service aggregators have made existing poor regulations, redundant too. A cursory reading of the current regulatory framework depicts the mismatch between the rules in place and the demands of the new-age consumers. For instance, the acts governing B&Bs tend to make sweeping assumptions about consumer preferences, making mandatory, to include facilities like an iron and iron board, internet connection, and wardrobe with at least 4 clothes hangers. Also, the guests are prohibited from running a separate kitchen in the household.

An analysis done by the research team at the Centre for Civil Society (CCS) found that kitchen was a key requirement for a majority of customers of Airbnb. Contrastingly, Airbnb has a checklist with the list of amenities that a host is free to select from, following a policy focused on disclosure instead of the specifics. It specifies that “None of these things are required, but sometimes they add a nice touch to help guests feel welcome.” While a customer is booking an establishment, Airbnb lists out the facilities available and not available, to facilitate informed decision-making.

Similarly, when a cab can be booked, its location tracked, and the approximate final fare shown by a smartphone, the need of a neon signage on top of taxi signalling its availability, or a meter in the cab becomes redundant; all of which are mandatory under the current rules.

Uber and Airbnb have given us a glimpse of the future that awaits us. The world is turning more interactive and sharing economy is going to be the norm. Seldom do such opportunities arise for the policymakers, where they get a chance to curate policies for hitherto unexplored arenas. There are two broad approaches available now; to either treat these service aggregators at par with the existing entities, creating a prohibitive, status-quoist environment or modifying the existing regulatory structure in such a way that it enables innovation and creativity which is more suited to handle the highly dynamic services sector.

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