Good to be bad: Should we be worried by the sharing economy?

• Author: Russell Matthews,Dominic Chalmers
• DOI: http://doi.org/10.1002/jsc.2295
• Date: 01 November 2019
• Published date: 01 November 2019

RESEARCH ARTICLE

Good to be bad: Should we be worried by the

sharing economy?

Dominic Chalmers

1

| Russell Matthews

2

1

University of Glasgow, United Kingdom

2

University of Strathclyde, United Kingdom

Correspondence

Dominic Chalmers, University of Glasgow,

United Kingdom

Email: dominic.chalmers@glasgow.ac.uk

Abstract

We develop the notion of a legitimacy tipping point to demonstrate how informal

economy practices are being utilized by innovative sharing economy ventures to

gain a competitive advantage that is subsequently leveraged to reconfigure formal

institutional arrangements. Companies who are able to scale rapidly can afford to

contravene regulations, provided they have public support. When they reach a cer-

tain size, in terms of investment and customer numbers, regulators are forced into

a reactive position where novel business models are legitimized. This raises an

important question for regulators and entrepreneurs as to whether subverting busi-

ness regulation is being viewed as a viable source of competitive advantage by

scaling firms.

1|INTRODUCTION

Since the launch of Napster in 1999, new economic models based

on peer-to-peer (P2P) exchange have had an increasingly disruptive

impact on the economy. Alternately termed the sharing economy

(Martin, Uphamb, & Budd, 2015), the access economy (Belk, 2014),

the collaborative economy (Stokes et al., 2014) and the peer econ-

omy (Fraiberger & Sundararajan, 2015), variations of these models,

which employ digital mul tisided platforms to conn ect buyers and

sellers (Gandia & Parmentier, 2017), underpin many of today's

fastest-growing entrepreneurial ventures. Notable examples include

the peer-based taxi service Uber and AirBnb, a service that allows

users to rent out spare accommodation. Despite forming in 2009

and 2008, respectively, Uber has a 2018 valuation of up to $100bn

(Ram et al., 2018) and AirBnb is valued at $31bn (Carson, 2018).

What is remarkable about both companies is that, despite significant

market capitalization, they are or have been considered illegitimate

by many formal institutional actors (Hellier, 2015), with conflicting

attitudes to the these new distributed business models existing even

within different l evels of the same gove rnment. In the United K ing-

dom, for example, the national government has been broadly

supportive of the “sharing economy”(Wosskow, 2014), yet t he con-

servative former may or of London, Boris Jo hnson, struck a more

cautious note, observing “law is being systematically broken –or at

least circumvented –by the use of the Uber app”(Johnson, 2015,

p. 1). Such variation in opinion, even within the same political party,

characterizes the institutional uncertainty surrounding these emerg-

ing practices.

In this article, we highlight that the historically unprecedented

scope for a start-up to scale globally over a short time period

(Ramadan et al., 2015) has increased the “pull”for technology entre-

preneurs to seek competitive advantage through informal economy

practices that are considered illegitimate by formal institutional actors

such as regulators or legislators. By operating partly outside, or at the

boundaries of formal institutional arrangements (Gobble, 2015), these

entrepreneurial ventures gain rapid market share through what com-

petitors consider unfairor potentially illegal methods(e.g., sidestepping

labor laws or avoiding taxation). However, once a “tipping point”is

reached in terms of user volume, market penetration, and external

investment, it becomes untenable for existing regulatory frameworks

to contain the scale of transgression. Legislators are then pressured

into a reactive position whereby they adapt or clarify laws to accom-

modate the new practices, often at the expenseof incumbents, leading

to the new business models being integrated into, and hence

reconfiguring, the formaleconomy.

JEL classification codes: O33, K20, L26.

DOI: 10.1002/jsc.2295

Strategic Change. 2019;28:403–408. wileyonlinelibrary.com/journal/jsc © 2019 John Wiley & Sons, Ltd. 403