The sharing economy.

• Author: Majerol, Veronica
• Position: ECONOMICS

Need a ride? A cheap place to stay? Companies like Uber and Airbnb are changing the way we live and work. Who benefits and who loses?

When Olivia Iannone and Carolyn Rumrill wanted to explore Shanghai last fall during a semester abroad in Beijing, they didn't check into a Hilton or a Sheraton. Instead, the University of Pittsburgh students stayed in the home of a complete stranger who had listed his apartment on Airbnb.

"The experience was great," says Iannone, a junior, who rented the place for $22 a night. "The apartment was super clean, and it was in an awesome location."

Just a few years ago, Iannone's story might have sounded crazy. But peer-to-peer businesses like Airbnb are exploding in popularity in the U.S. and around the world. Dozens of companies have made it cheaper and easier to "share" products and services with strangers rather than buy them from traditional companies. Uber and Lyft let you hail rides from people who drive you around in their cars, TaskRabbit allows you to outsource chores like laundry, and Loanables.com lets you rent or rent out everything from power drills to barbecue grills (see box below).

Bringing Buyers & Sellers Together

This "sharing economy," which is largely unregulated, is changing how we consume products and services, and how we work. It offers many benefits, including lower prices and greater choice for buyers, and income to sellers. But are there also downsides?

Sharing is taking off now in large part because of technology. Without the Internet, smartphones, and GPS, the sharing economy wouldn't be possible. Companies like Airbnb and Uber have created apps that serve as digital marketplaces, bringing together buyers and sellers who previously would never have found each other. The apps also allow buyers (and often sellers) to post reviews, which builds trust--a key element in the sharing economy. Both parties can see each other's ratings before agreeing to do business, and they get to rate each other when the transaction is over, which encourages everyone to be on their best behavior.

"I really like that once I order the Uber on my phone, it shows me exactly what the person looks like, who's picking me up, exactly what car they're going to be driving, and what their rating is," says Lana Miller, 25, an engineering student at Stevens Institute of Technology in Hoboken, New Jersey. "If I ever thought, 'Oh this person looks sketchy,' I would just cancel it. But I've never had that situation."

The rise of the sharing economy also coincided with the economic collapse of 2007-08, which forced many out-of-work people to come up with new ways to make ends meet. Some started putting to work what economists call underutilized resources, like a spare bedroom or a Honda that sits in the driveway 90 percent of the time. Renting out things we use only once in a while--like cars, boats, and even food processors--can also make more sense than buying and storing them.

"Economics has always been about production," says Michael Munger, an economics professor at Duke University in Durham, North Carolina. "Now it's about sharing."

Good News, Bad News

But whether the sharing economy is a bane or a blessing really depends who you ask (see chart, facing page). For consumers, it's been mostly beneficial. The rides and home rentals available through Uber and Airbnb are almost always cheaper than taxis and hotels. And consumers now have more choice: Before Uber, for example, it was nearly impossible to get a cab in the rain in cities like San Francisco or New York; now there are Uber drivers who head out when it rains, or on Saturday nights, because they know customers are there.

If you're an Uber driver, the sharing economy has also been mostly good news. You can now make money by driving a car that used to sit idle, and you can do it whenever you want, for as many hours as you want.

On the other hand, Uber drivers are considered self-employed, so they don't get paid vacations, health insurance, or any of the other perks that come with traditional full-time jobs.

And if you're in the hotel or taxi business, you probably hate companies like Uber and Airbnb. The taxi industry has been fighting tooth and nail to stop Uber and Lyft, accusing them of...