Spontaneous deregulation

Platform businesses such as Airbnb and Uber have risen to success partly by sidestepping laws and regulations that encumber their traditional competitors. Such rule flouting is what the authors call “spontaneous private deregulation,” and it’s happening in a growing number of industries. The authors explain that businesses are most vulnerable to spontaneous deregulation when certain conditions hold. One, for example, is when regulations are excessive or outdated, protecting consumers against unlikely risks—and when platform providers offer other means of shielding consumers from harm. Incumbents facing threats from private deregulation can respond by taking legal action to press for enforcement of existing laws. Alternatively, they can embrace aspects of a new entrant’s approach—taxi operators, for example, have developed Uber-style apps for ordering rides. Incumbents can also leverage their own strengths to set themselves apart from upstart competitors—that’s the tactic that CitizenM, the Pod Hotel, and Yotel are using to woo guests who might otherwise book with Airbnb. If all else fails, incumbents may have to cease operation. But they stand a good chance of avoiding that fate if they address their vulnerabilities early.