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Technology v Regulation: Airbnb Tests NYC Rental Rules

Friday, 23 May 2014

Disruptive start-up businesses have proliferated enormously with improvements in technology, particularly those enabled by the internet.

The direct means through which internet platforms can provide disparate buyers and sellers a way to find each other has seen massive disintermediation across virtually every sector of commerce. Cutting out the middleman has been just one aspect of this trend though; it has also created what appear to be new markets where none previously existed.

Broadly this has been a beneficial development for small scale buyers and sellers but whether tech companies are disrupting existing markets or creating new markets, there are inevitably questions about how their activities are regulated.

New Markets or Old Markets in a Different Context?

Technology has enabled everyone to become a seller of sorts by providing a market place where buyers can find their wares and exchanges can be made easily with a degree of safety.

Highly fragmented potential markets have been realised by the efficiency of network effects captured by the likes of eBay or Airbnb. What was once the preserve of a handful of people at car boot sales or frugal property owners that took in lodgers on an informal basis are now widespread activities engaged in regularly by millions of people.

Although many of these ideas have the appearance of being entirely new markets, they often bear much resemblance to existing markets and may even end up competing with them – think second hand shops, auctioneers or even ordinary retailers in the case of eBay and landlords or hotels in the case of Airbnb.

Although some internet platforms appear to have been designed to deliberately skirt regulations that make heavily-regulated industries inefficient (and often shielded from competition at the same time, crowd-funding platforms or taxi apps for example) others have simply run into regulations as users have pushed legal boundaries.

Why is Airbnb in Regulators’ Sights?

The New York attorney general has requested that Airbnb disclose its user information after claiming that around 60 per cent of its listings in New York City breach laws aimed at preventing homeowners from operating illegal hotels. Airbnb has challenged the request. The company has also suggested that the laws were never mean to apply to homeowners occasionally renting out their homes.

Although the merits of this particular case are difficult to ascertain, it once again draws attention to the question of whether tech companies are creating new markets requiring different regulations or whether they are simply providing a new way of doing something that is already covered by existing legislation. Although regulation can have perverse secondary effects such as protecting existing businesses, it is worth remembering that it is primary purpose is usually to protect the most vulnerable parties such as consumers.


Thus far, internet companies have been masterful at passing the buck onto users when it comes to compliance with local laws. With user numbers often in their millions, users bases widely dispersed across different jurisdictions and private information protected by various safeguards, that makes it much harder for authorities to police and enforce existing regulations even when they apply.

Legislators have also struggled to keep up with new developments more generally but this is unlikely to remain the case forever.

Tech companies and their users need to remain aware of the laws affecting them and of any new legislation that is introduced. For specialist advice contact Peter Gourri today by email or telephone 0207 611 4848.

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