The term economy means the monetary and financial condition of a geographical location, determined in general by the mutual interaction of the demand and supply forces operation in the market of the economy. The demand and supply forces are concerned with the goods and services that are mostly produced in the economy. Generally, the goods and services that are produced in the economy can be accounted for and falls under the tax net and regulatory domain of the economy (Mankiw, 2014).
The goods and services, which come under the purview of the taxation regulation of an economy, comprise of what is known as the white economy. However, few goods and services produced, in the economy fall outside the regulatory purview of the country and are not accounted for. These productive activities do not fall in the taxation net of the economy and they form the black economy of that country. The black economy is said to prosper at the cost of the governing authority of the economy and its size varies from country to country (Kirchgässner, 2017).
However, not all the activities falling under the domain of black economy may be necessarily illegal though all the illegal productive activities by default fall in this category. For example, the cash payment to a construction worker by a legalized company without any account of the payment, though not illegal, may fall under the purview of black economy. Again, the activities like smuggling, bribing, tax evading activities being illegal also comprise the black economy of a country (Schneider & Enste, 2013).
From the beginning of the existence of society, the economic patterns have undergone sufficient dynamics and changes, with various economic frameworks coming into existence over time. One such economic framework, which has been a subject of substantial speculation among economists and policy makers, in the contemporary period, is that of the framework of shared economy. The shared economy refers to the economic system in which the individuals can borrow or share the assets, which are already owned by some other individuals. The term asset here means goods and services and in this framework, these assets have the provision to be shared by private individuals, in exchange of monetary fees or in free of cost, depending upon the situation and the nature of asset, which is being shared (Heinrichs, 2013).
The objective and the economic intuition behind this economic model is that by facilitating sharing of the assets, the economy can move towards a higher efficiency level. The underutilized asset with someone can be of usage to another individual who is in need of that asset but is deprived of it and this can be done in lieu of money. The underlying economic objective behind this shared economy concept is the maximization of the overall welfare of the economy as a whole. The shared economic model has been in existence in real global scenario for quite some time and there are many evidences of its operation. With the advent of new technologies and innovations facilitating global communications, this economic framework is projected to make more significance in the global scenario and it can become a dominant economic framework of operation in the near future (Hamari, Sjöklint & Ukkonen, 2016).
The above section discussed about the shared economy framework and the features of that conceptual framework. Over the years, the shared economy model has gained significant attention all over the world, due to its unique conceptual construct and objective of overall welfare maximization. The implementation of this model has been seen in many countries till now an there are many organizations (mainly commercial) who are coming under the domain of the shared economy business model, with time as the model shows potential to be successful if implemented correctly (Möhlmann, 2015). However, not all commercial organizations are much in favor of this shared economic model as they do not tend to believe on the feasibility and profitability of sharing privately owned asset. These commercial organizations tend to remain under the domain of more of the traditional economic business models, which have been prevailing for a considerable amount of time. The traditional economic models, unlike those of the shared economy model, do not allow sharing of privately owned goods and services. According to these frameworks, the assets are only allowed to be enjoyed by the individuals who own these assets and have paid for availing these facilities (Schor, 2016).
The assignment, in this portion tries to put forward the different aspects of both the conceptual frameworks of the shared economy model and the traditional models. In this part the assignment tries to analyze how the respective characteristics of these economic constructs, which are mainly countering one another, have their implications on the different commercial enterprises in the real case scenarios. To study the implications of these models in real economic situations, the assignment takes into account two real commercial organizations from the same industry, operating in the same country that is under the same taxing and regulatory framework (Orsi, 2013). The two enterprises taken are Airbnb and Four Seasons Hotel, both being significantly popular names in the hospitality and accommodating industry. The country chosen for study purpose is Australia and both the enterprises mentioned above have been very much into operation in the commercial markets of the country for last few years (Cohen & Kietzmann, 2014). While Airbnb is known to be a company operating under the framework of the shared economy business model, Four Seasons Hotel operates in a more traditional kind of economic framework, their respective structures and prospects being discussed in the following sections.
Airbnb, as a hospitality and accommodation facilitator, has been in the global market scenario since 2006 and has gained significant popularity in the market for the company’s unique nature of service provided. The enterprise is not the owner of any lodging facility. It is an online facility which allows people to rent or to lease out lodgings all over the world. In simpler words, Airbnb enables those people who have their own lodgings and want to lease or share their lodgings with others and earn money in return, to do the same. Under this service, people can rent home stays, hostels, hotel and rooms according to their needs and the people with spare accommodating provisions can utilize their unused assets by sharing them in exchange of monetary fees, thereby making the situation profitable for both the parties on the consumption and the production sides (Airbnb.co.in, 2017).
The enterprise acts as a broker and in turn receives commissions as percentage of the fees for every booking, from both the demand and the supply sides. At present, the company is operating in almost all of the major developed and many commercially developing countries, in their prime locations. Specifically 191 countries and nearly 65000 cities come under the range of operation of Airbnb and the enterprise has a whopping number of 3,000,000 accommodating facilities, listed under its domain, from all over the world. With a clientele comprising of more than 150,000,000 users and still expanding, Airbnb shows huge potential of even more expansion in the future due to the one of a kind type of service structure of the company, which increases the convenience of travelling to new places and find lodging in the new age global economy. The current valuation of the company is nearly $30 billion (Gassmann, Frankenberger & Csik, 2014).
From the above discussion, it is clearly evident that the operating structure of Airbnb, as a commercial enterprise is very much similar to that of the operating framework as suggested in the economic business model. Airbnb Australia, offers parties having the spare housing facilities and looking for accommodations to interact on an online platform and do the deal as per their requirement and convenience. This indicates towards the trend of a sharing economy framework (Zervas, Proserpio & Byers, 2014). The private individuals, who have under-utilized assets, under the domain of this company, can share these assets with those who are deprived of these assets and are in need for these facilities, in exchange of monetary fees. The mode of operation of the commercial enterprise is therefore mandatorily similar to what the shared economic business framework suggests. The objective of the company, as a commercial organization, is to maximize the welfare of the clientele as a whole by facilitating a more uniform and efficient allocation of the scare assets, the assets being accommodation facilities in this case (Guttentag, 2015).
The company has gained positive attention of huge number of people all over the world and is steadily becoming a strong alternative to many of the predominantly existing hospitality and accommodating market players. By bringing in its domain the common households as players in the supply side, the company is increasing the range of the geographical domain of their operation and is removing traditional hurdles, especially location hurdles that were previously faced by the customers who wanted to seek temporary lodging in non-commercial places per se. The projected valuation of the company in Australia, as well as in the global scenario is expected to increase significantly with more and more people becoming accustomed to the usage of internet and online transaction systems (Bocken & Short, 2016).
However, there has been significant concern among the monetary authorities of Australia regarding the taxing framework of the company. The services provided by the company being varied and not purely commercial on nature, there are many avenues for the enterprise to reduce their tax burden. The operational method of the company being purely online, this becomes even easier on part of the enterprise (McNamara, 2015). It has been seen that all the bookings that is taken by the company for Australia is not accounted in Airbnb Australia but is accounted under Airbnb Ireland, even though the service providers are located in Australia and the customers are also seeking lodging in the same country. The company, to reduce the tax burden that has to be borne by Airbnb for the transaction fees it charges, has specifically done this, as being worried by the governing and monetary authorities of the country. The tax regulation of Ireland being more favorable to the enterprise than that of Australia, the company has been accounting all their monetary activities under the taxing regulation of Ireland, which may be a cause of concern for the Australian Government (Edelman & Geradin, 2015).
However, in spite of these limitations, the company is expanding in accommodating business and the overall success of the company in a short time gives robust support in favor of existence of the shared economy model in the real global scenario and argues in favor of the operational structure of the model and its practicality.
However, there are many counter examples of enterprises operating in the same accommodating industry as that of Airbnb in Australia, but in a more traditional economic framework. One such example is the Four Seasons Hotels. The hospitality chain, being a global player, also has significant share of operation in the country. With average annual revenue of $4billion and operating more than hundred hotels all over the world, this chain of hospitality service has also been emerging as an eminent player in the same market as that of the enterprise, Airbnb (Fourseasons.com, 2017).
The operating mechanism of the Four Season Hotels, Australia, though in the same market and at the same period of existence like that of Airbnb, is not anywhere near the conceptual framework of the shared economy business model. Instead of that, the company follows a more traditional economic model of operations. The services provided by the enterprise cannot be shared among the private individuals of a country in exchange of monetary fares (Tribe, 2015). Customers of the services provided by the company, paying for the services are only eligible to enjoy the facilities and the company does not allow them to share these facilities with any third party person. This mode of operation is a clear indication of the organization operating under the domain of the traditional economic framework for business and their success validates the feasibility and applicability of the traditional economic models in the contemporary global business scenarios (Fourseasons.com, 2017).
The company, however, has been facing many criticisms regarding the pricing strategies that the company has been using in the country. The higher than standard prices, that are being charged by the Four Seasons Hotel, for providing what is claimed by them to be premium service and in prime commercial and holiday locations, create a burden on the clientele who wants to avail their services. The taxing structure of the company, however, appears to be more transparent than the previously discussed commercial enterprise.
The above discussion, therefore, shows that the economic models, the shared economy model as well as the traditional economy model, if implemented and operated in an appropriate manner, can be profitable for the commercial enterprises as both of them are highly feasible in the contemporary global business situations (Nagle, Hogan & Zale, 2016).
The problem of black economy, as discussed in the first section of this assignment, has been a consistent and increasing problem all over the world, becoming a cause of concern for the governing authorities and the policy planners of almost all the countries around the world. With the recent expansion of the shared economic model, the problem has been aggravated as the model, by default gives its users the avenues to keep their activities outside the purview of the taxing regulations of the countries. The Treasury in the Black Economy Taskforce of Australia, in its Interim Report has suggested several reforms and recommendations, which can be implemented to address the problem of black economy (Treasury.gov.au, 2017). Among these, the ones with potential to reduce the contribution of the shared economic framework, in the formation of black economy, are discussed as follows:
- Reduction of cash payment and cash transactions in an overall manner and introduction of non-cash payment systems can significantly reduce the burden of black economy by increasing the accountability of the transactions.
- The firms with transparent and good records of taxation should only be eligible to the procurement opportunities as provided by the Government of Australia.
- The technologies and innovations, which suppress sales, should not be allowed to be in operation.
- Incentives should be given to the small enterprises, incorporating the non-cash methods of payments and transactions, such that the other enterprises also get motivated and come in the purview of these types of non-cash operational framework, thereby, decreasing the scope of expansion of the black economy in the country.
- The tax payment methods should also be expanded and should be made fit for the current economic conditions (Williams, 2014).
- The integrity of registration of businesses should also be enhanced and proper modernizations have to be done in this aspect to make the business scenario of the country run efficiently.
- Proper awareness regarding the taxation framework of the country, should be generated, especially among the new and the small firms so as to make the tax structure and procurement of taxes easy.
- The threshold of GST has to be lowered to reduce defaulting in the taxation frameworks.
- The overall cash transactions should be subjected to limitations after a certain level.
- The regulatory frameworks should be relaxed a little for the small companies to facilitate their growth and to make them more competent in the global business market (Buehn & Schneider, 2012).
These recommendations as suggested by the Interim Report, if implemented correctly by the relevant governing authorities, can prove to be significantly beneficial to reduce the contribution of the shared economic framework in the creation of black economy burden for the country in the long run.
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