Tuesday, September 30, 2014

Airbnb Is Important for European Tourism

In July, Free State Foundation President Randolph May and I published a paper regarding the positive impact the sharing economy has on consumers. Despite this, many state and local governments still consider banning or at least restricting the services provided by leading sharing economy companies like Airbnb.
Airbnb is an application that connects hosts who are willing to share their living space with guests who are looking for a place to stay. For example, Airbnb lowers the cost of going on vacation and incentivizes tourism. Not only can vacationers often find cheaper alternatives than hotels and/or cleaner alternatives than hostels, they can also capitalize off of the service by sharing their living space and earning some extra income while they are gone.
Airbnb may be especially helpful in Europe, where more than half of its business occurs according to a New York Times article. Airbnb’s service is a great complement to the European Union’s (EU) free migration policy. For individuals who want to travel throughout many European countries, staying at someone’s house or apartment is good way to experience the local culture.
In our paper, we specifically discussed Airbnb’s regulatory battle in New York. But unfortunately, Airbnb is not just being regulated in the United States; it’s receiving fights from European governments as well. But the policies are not consistent throughout the continent. For example, Berlin and Barcelona have banned Airbnb’s service, while Paris and Amsterdam have encouraged more sharing.
Airbnb faces regulatory hurdles because policymakers see the company as a threat to local businesses. But as we described in our paper:
“It always harms consumers when public policymakers attempt to ‘level the playing field’ by subjecting entities to regulatory restrictions that are not needed. The proper way to respond to ‘level the playing field’ claims is to remove unnecessary regulations wherever they apply, not to expand them to new entities.”
But even legitimate concerns for regulating Airbnb, such as consumer protections, should be dismissed because markets have self-regulating mechanisms:
“If purveyors of sharing applications engage in harmful, unhealthy, or unsafe activities, competition is probably the most important regulatory mechanism to address any real problems. In competitive markets, poor consumer satisfaction generally means that a company will lose market share, or even fall out of the market. If a company is not operating safely or if it is putting its users in unhealthy conditions, a competitive market allows for unsatisfied consumers to choose alternatives.”
And the market is quite competitive. Airbnb, HouseTrip, VRBO and Roomorama all offer similar services in Europe.  
Since many EU countries are small and contiguous, inconsistent policies on sharing services, like the ones offered by Airbnb, add significant costs to individuals who want to travel freely throughout the EU. Whether the traveler avoids cities like Berlin and Barcelona or visits them but is forced to pay more money for a traditional hotel, policies restricting or banning sharing services in European cities make “free” migration much more costly.