Americans love a garage, but we don\u2019t park cars there<\/a>. We store old bikes with bent wheels, parts of beds and dressers, and a wide variety of tools and old clothes. Personally, I have a box of old electronic parts and cables that I\u2019m sure I\u2019ll use\u2026. someday.<\/p>\n It was not always like this. People had only a few things, and shared by allowing reciprocal borrowing. Often there was some communal arrangement for bigger things, as with the neighborhood bread ovens of medieval Europe<\/a>.<\/p>\n Today, though, separate private ownership is the norm. To understand why, one has to understand transaction costs. Of course, I would say that, since I think the answer to almost every question in economics is \u201ctransaction costs.\u201d But in this case, it\u2019s actually true.<\/p>\n Ronald Coase famously asked, \u201cIf markets are so great, why are there firms?\u201d His answer was \u201ctransaction costs.\u201d Using markets is costly. Prices are important signals at broad levels, but for many small and routine choices, it\u2019s much cheaper to \u201cinternalize\u201d the costs of using markets. Firms arise to bypass markets and reduce transaction costs<\/a>.<\/p>\n If Coase were alive today, he might ask a different question: If renting is cheaper and more efficient for most durables, why do we own almost everything?<\/em><\/p>\n Different question, but the same answer: transaction costs. Ownership internalizes the costs of using rental markets or sharing arrangements. The transaction cost of renting a ladder, a car, a spare room, or kitchen appliance wildly exceeded the value to the potential user, or the revenue an owner could hope to earn.<\/p>\n To share any asset or tool, you must account for certain costs:<\/p>\n Ownership was a workaround for high transaction costs. We purchased goods we barely used because we wanted reliable access to them without depending on others.<\/p>\n But what if dependence and sharing were easy, and as cheap, even invisible?<\/p>\n Transactions \u201ctake place.\u201d That means exchanges happen, but they also require a \u201clocation.\u201d That place was once a physical market, or a mall. Today, the \u201cplace\u201d can be virtual, on a platform. A platform\u2019s true output is not a product but a service<\/em>: the reduction of transaction costs that make commodifying excess capacity expensive. Amazon, Uber, Airbnb, and thousands of other platforms sell connections. If I have a car, and a few minutes, and you need a ride, we can now transact at low cost. Platforms are factories that produce reliable cooperation between strangers<\/em>. The result is that the idle time of durable assets becomes legible to markets. What was once an expensive object to be stored becomes an income-producing asset.<\/p>\n We buy durable goods only for the stream of services they provide. I don\u2019t actually want a power tool; what I want is two holes in this wall, now. The lowest solution (to triangulate, transfer, and trust) to that problem has been ownership. But that comes bundled with idle storage time: a drill may be used for 10 minutes a year, yet occupies physical and financial space for 365 days.<\/p>\n The same is true for cars, guest bedrooms, clothing, tools, musical instruments, and row after row of kitchen equipment quietly rusting under our sinks. We \u201cstore to renew\u201d future access: we want the option to use the thing immediately<\/em> when we need it. But for most of our lives, we are simply paying a two-part tax \u2014 the opportunity cost of capital tied up in stuff, and the costs of storage \u2014 for the privilege of being able to get these two holes in this wall, right now, or for two extra chairs used only when company visits.<\/p>\n It\u2019s not just garages being used to store stuff we don\u2019t use. <\/a>The US has more than 23 million individual storage units<\/a> in 50,000 facilities, with annual revenues of nearly $45 billion<\/a>. Well over 10 percent of US households rent at least one storage unit; many rent several.<\/p>\n In two-sided markets<\/a>, a person can be both buyer and seller, as suits them. Consider an example: A person who is normally a consumer of housing is leaving town for two weeks. She is now a seller or producer of housing services, renting out her flat on AirBnB<\/a>. When she drives her car to the airport, \u201cbuying\u201d transport services from herself, she parks in the Turo lot<\/a>. The car is then rented out for 10 days, and is available for her when she returns from her trip. She both saved the costs of parking the car in the airport lot, and made money from renting the car out when it was otherwise idle. Overall, between renting her flat and renting out her car, she makes more than $4,000: enough to pay for most of her vacation expenses.<\/p>\n The bright-line distinction between producer and consumer, a relic of the Industrial Revolution, dissolves in platform space. This has consequences for policy, taxation, labor regulation, and even our intuitions about property. When excess capacity is commodified, ownership becomes less a categorical state and more a bundle of transferable rights<\/em> that can be partitioned and sold temporarily.<\/p>\n In this sense, the \u201csharing economy\u201d is poorly named. Nothing is being shared in the gift-exchange sense. What is being shared is temporary access<\/em>. What is being commodified is excess capacity<\/em>. Fifty years from now, observers will look back on our era with incredulity. Why did people buy all their own tools? Why did cities devote up to 30 percent of their usable road area to storing empty cars? (In Manhattan, it\u2019s more than 40 percent!<\/a>) Why did we allow trillions of dollars of capital to sit idle for 95+ percent of its lifespan?<\/p>\n The answer we will give \u2014 \u201cWell, transaction costs were too high!\u201d\u2014 will seem quaint.<\/p>\n Platforms are revealing that much of what we think of as \u201cownership\u201d is really<\/a> just expensive access insurance. Once platforms reliably provide that insurance, the original rationale for owning evaporates.<\/p>\n The commodification of excess capacity is not a fad. It is the natural consequence of entrepreneurs discovering that the most valuable thing they can sell is not a product or a service, but the reduction of friction that once made sharing impossible.<\/p>\n The post What Uber and AirBnB Really Sell: Sharing with Transaction Costs Slashed<\/a> was first published by the American Institute for Economic Research (AIER)<\/a>, and is republished here with permission. Please support their efforts.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Americans love a garage, but we don\u2019t park cars there. We store old bikes with bent wheels, parts of beds and dressers, and a wide variety of tools and old clothes. Personally, I have a box of old electronic parts and cables that I\u2019m sure I\u2019ll use\u2026. someday. It was not always like this. People …<\/p>\n","protected":false},"author":90,"featured_media":2324418,"comment_status":"close","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[59],"tags":[],"class_list":["post-2513505","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics"],"_links":{"self":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2513505","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/users\/90"}],"replies":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/comments?post=2513505"}],"version-history":[{"count":1,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2513505\/revisions"}],"predecessor-version":[{"id":2513506,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2513505\/revisions\/2513506"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media\/2324418"}],"wp:attachment":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media?parent=2513505"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/categories?post=2513505"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/tags?post=2513505"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Coase\u2019s Other Question: Why Do We Own Instead of Rent?<\/h2>\n
\n
Platforms as Middlemen Selling Reductions in Transaction Costs<\/h2>\n
Two-Sided Markets<\/h2>\n