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Creative Destruction and the Sharing Economy: Uber As Disruptive JOBNAME: Schneider PAGE: 1 SESS: 2 OUTPUT: Tue Dec 6 09:02:54 2016 Creative Destruction and the Sharing Economy Columns Design XML Ltd / Job: Schneider-Creative_destruction_and_the_sharing_economy / Division: Prelims /Pg. Position: 1 / Date: 19/10 JOBNAME: Schneider PAGE: 2 SESS: 2 OUTPUT: Tue Dec 6 09:02:54 2016 NEW THINKING IN POLITICAL ECONOMY Series Editor: Peter J. Boettke, George Mason University, USA New Thinking in Political Economy aims to encourage scholarship in the intersection of the disciplines of politics, philosophy and economics. It has the ambitious purpose of reinvigorating political economy as a progressive force for understanding social and economic change. The series is an important forum for the publication of new work analysing the social world from a multidisciplinary perspective. With increased specialization (and profes- sionalization) within universities, interdisciplinary work has become increasingly uncommon. Indeed, during the 20th century, the process of disciplinary specialization reduced the intersection between economics, philosophy and politics and impoverished our understanding of society. Modern economics in particular has become increasingly mathematical and largely ignores the role of institutions and the contribution of moral philosophy and politics. New Thinking in Political Economy will stimulate new work that combines technical knowledge provided by the ‘dismal science’ and the wisdom gleaned from the serious study of the ‘worldly philosophy’. The series will reinvigorate our understanding of the social world by encouraging a multidisciplinary approach to the challenges confronting society in the new century. Titles in the series include: Economic Futures of the West Jan Winiecki Entrepreneurial Action, Public Policy, and Economic Outcomes Edited by Robert F. Salvino Jr., Micheal T. Tasto and Gregory M. Randolph Sweden and the Revival of the Capitalist Welfare State Andreas Bergh Competition, Coordination and Diversity From the Firm to Economic Integration Pascal Salin Culture and Economic Action Edited by Laura E. Grube and Virgil Henry Storr Politics as a Peculiar Business Insights from a Theory of Entangled Political Economy Richard E. Wagner Liberty and Equality in Political Economy From Locke versus Rousseau to the Present Nicholas Capaldi and Gordon Lloyd The International Monetary System and the Theory of Monetary Systems Pascal Salin Creative Destruction and the Sharing Economy Uber as Disruptive Innovation Henrique Schneider Columns Design XML Ltd / Job: Schneider-Creative_destruction_and_the_sharing_economy / Division: Prelims /Pg. Position: 2 / Date: 19/10 JOBNAME: Schneider PAGE: 3 SESS: 2 OUTPUT: Tue Dec 6 09:02:54 2016 Creative Destruction and the Sharing Economy Uber as Disruptive Innovation Henrique Schneider Chief Economist, Swiss Federation of SME, Switzerland NEW THINKING IN POLITICAL ECONOMY Cheltenham, UK + Northampton, MA, USA Columns Design XML Ltd / Job: Schneider-Creative_destruction_and_the_sharing_economy / Division: Prelims /Pg. Position: 1 / Date: 19/10 JOBNAME: Schneider PAGE: 4 SESS: 2 OUTPUT: Tue Dec 6 09:02:54 2016 © Henrique Schneider 2017 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number: 2016949984 This book is available electronically in the Economics subject collection DOI 10.4337/9781786433435 ISBN 978 1 78643 342 8 (cased) ISBN 978 1 78643 343 5 (eBook) Typeset by Columns Design XML Ltd, Reading 02 Columns Design XML Ltd / Job: Schneider-Creative_destruction_and_the_sharing_economy / Division: Prelims /Pg. Position: 2 / Date: 19/10 JOBNAME: Schneider PAGE: 5 SESS: 3 OUTPUT: Tue Dec 6 09:02:54 2016 Contents Preface vi Introduction 1 1 What is the economics of Uber (and of this book)? 10 2 What is Uber’s business model? 36 3 What are creative destruction and disruption innovation? 63 4 Are innovation and regulation opposites? 92 Conclusion: destroying Uber, the destroyer? 121 References 127 Index 135 v Columns Design XML Ltd / Job: Schneider-Creative_destruction_and_the_sharing_economy / Division: Prelims /Pg. Position: 1 / Date: 19/10 JOBNAME: Schneider PAGE: 6 SESS: 4 OUTPUT: Tue Dec 6 09:02:54 2016 Preface This is a book on Uber. But it is about more than that. It is about an important question in economics: What is the relation between creative destruction and regulation? Uber is a good case for studying this relation. After all, it has been hailed an – or even the – example for creative destruction. And it is at stake with regulation in a large number of cases in the United States, Europe, Asia and Latin America. If Uber is an agent of creative destruction, how is it being impacted by regulation? The inverse question can also be asked. How does Uber impact regulation? And how does this all relate to the sharing economy? So many questions – what are the answers? Economists and other social scientists are generally interested in abstract lessons to learn. They want to know if there is any general pattern in the relation of Uber, its creative destruction and the way in which it is impacted by regulation or it impacts regulation. Then they want to know if this pattern can be generally applied to other and similar cases – for example, to the sharing economy at large. Economists and social scientists usually look for what they refer to as ‘generalizable knowledge.’ This book combines both: the interest in Uber as a unique business model and the more general preoccupation for abstract patterns. This approach has two main advantages. On the one hand, it makes it easier to think about the economic relation between creative destruction and regulation by reviewing a well-known and timely case. On the other hand, this approach helps to understand Uber as such. Many things that Uber is claimed to be – for example, an innovator, a disruptive agent or a game-changer – become clearer once they have been explained within their economic rationale. Besides, there are a lot of economic expressions used around Uber that sound straightforward … but are not. Examples are creative destruction, sharing economy or competition regulation. This books make them clearer – or debunks them. What can economics learn from Uber? And how does economics help to understand the Uber-effect on other businesses? These two questions are important. They warrant answers. And that is what this book sets out to do. vi Columns Design XML Ltd / Job: Schneider-Creative_destruction_and_the_sharing_economy / Division: Prelims /Pg. Position: 1 / Date: 28/11 JOBNAME: Schneider PAGE: 7 SESS: 5 OUTPUT: Tue Dec 6 09:02:54 2016 Preface vii On a normative note, this book does not intend to justify Uber’s actions or to defend the company against the criticisms it faces. The author of this book does not have any affiliation or connection to Uber, its investors or people employed by the company – indeed, the author has never used any service provided by Uber. The reason for it is not ideological; this author just considers Uber to be too complicated – for him – to use. Hailing a cab still has some charm … The author of this book would like to thank the following colleagues: Mark Sagoff, who pressed for the book to be written; Eirik Harris Lang, who was sympathetically skeptical about this project but was the main idea-giver; Felix Engelhard, who is a taxicab-industry expert and com- petitor of Uber – however, with sympathies toward that company. The Free Market Road Shows 2015 and 2016 served as platforms for testing and discussing many of the arguments used in the book. Declan James Ganley and John Chisholm inspired much of the entrepreneurial thinking. The Spring 2016 class in Managerial Economics (Lucerne) had to cope with their teacher’s increased interest for Uber, which often translated into more homework. The editors and crew at Edward Elgar Publishing have done their best to make the book readable and marketable; special thanks go to the series editor, Peter Boettke, to the commissioning editor, Alan Sturmer, and the anonymous reviewers. Columns Design XML Ltd / Job: Schneider-Creative_destruction_and_the_sharing_economy / Division: Prelims /Pg. Position: 2 / Date: 30/11 JOBNAME: Schneider PAGE: 8 SESS: 2 OUTPUT: Tue Dec 6 09:02:54 2016 Columns Design XML Ltd / Job: Schneider-Creative_destruction_and_the_sharing_economy / Division: Prelims /Pg. Position: 3 / Date: 19/10 JOBNAME: Schneider PAGE: 1 SESS: 5 OUTPUT: Tue Dec 6 09:02:54 2016 Introduction Uber – an app that links private taxi drivers with customers – has encountered several roadblocks around the world: a Brussels court banned it, a Berlin court ruled that the taxis are rental cars and must therefore return to their place of business between each fair, Paris briefly instituted a rule that an Uber cab had to wait for 15 minutes before picking up a passenger regardless of how far apart the two initially were, and the company has run into similar bumps in the road in severalAmerican cities. At the same time, NewYork City, Paris and Berlin, are all restricting the use of Airbnb, an app analogous to Uber, but for short-term rental
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