What is... | July 26, 2013

What is collaborative consumption?

You may have come across collaborative consumption in action without actually knowing the term. The term – championed by What's Mine Is Yours author Rachel Botsman – is a catchy way to describe the growing trend of sharing underutilised goods and services rather than buying them outright.


Other terms include the “sharing economy” and “peer-to-peer” business. Websites and apps have supercharged this age-old idea of lending to each other – but beware, along with the benefits, collaborative consumption carries risks as well.

Stop, collaborate and listen
The term collaborative consumption is said to date back to the 1970s in a paper about car sharing.
Botsman explained in a 2010 talk for non-profit, idea spreading organisation TED the idea that the rise of “crowd power” in the internet age is giving collaborative consumption a big boost and that social media makes it more common to trust people you’ve never met. She argues that the recession “shocked consumer behaviours”, also spurring on the collaborative consumption trend. Among examples highlighted are car sharing (via ZipCar and BuzzCar), getting home help (via TaskRabbit ) and finding or supplying accommodation for travellers (via Airbnb).
In the TED Talk, Botsman, a former director at high-profile charity the Clinton Foundation, detailed a successful car sharing experiment – saying that sharing rather than owning makes sense because cars cost thousands a year to run but tend to sit idle for most of the day.

Do you trust me?
Would you loan your spare room to a stranger? Your car? Would you hire a room or car from someone else?
Trust is a key part of collaborative consumption working successfully. In fact, a study published out of Utrecht University in 2012 that examined the willingness of the Dutch to rent and rent out their goods found mechanisms to check identities, get insurance and publicly report bad participants were important to lenders. The author Loes Keetels found younger people might need fewer of these mechanisms to be willing to loan out their goods. And overall, people were more willing to rent than to lend.

Money is a great motivator
Collaborative consumption has positive sustainability and social connotations but cold hard cash has also been found to be a big motivator.
Academics Juho Hamari and Antti Ukkonen from the Helsinki Institute for Information Technology examined why people engage in sharing platforms and found that deriving economic benefits (in other words, making money) was a key driver. This echoes a study by US-based research consultancy Latitude in 2010 called The New Sharing Economy that found that 69% of respondents were more inclined to share if they'd be able to make money from it – with money-making tipped to be the key to “scaling up sharing communities”.

Beat sunk costs (and other thinking traps)
In addition to cutting costs or boosting income, renting goods rather than buying may also help combat what economists call the sunk cost trap. The sunk cost trap is our tendency to irrationally continue with something because money, time or effort has been invested in it. With a car, for example, we might be inclined to continue to maintain an old or underused car because of expensive repairs undertaken in the past even if it doesn’t make financial sense. Using a car share scheme greatly reduces this type of thinking trap.
In addition, the mere act of owning something can lead us to value it more than a non-owner would. Known as the endowment effect , it can cloud judgement of the true value of a home, investments or even a humble coffee cup.
Again, the sharing economy – collaborative consumption – might be an avenue to avoid the thinking trap. After all, if you’re renting rather than owning, the emotional connection is likely to be greatly reduced.

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eZonomics team
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Would you tell your partner about any money worries?