Prosecco is the Italian sparkling white wine. PROSEco is a research programme that tries to establish whether the economic model of Airbnb and Uber sharing platforms is sustainable for all stakeholders. The second could be as sparkling as the first!
Paul Belleflamme is a professor of economics at UCLouvain, where he is attached to the Center for Operations Research and Econometrics (CORE) and the Louvain School of Management (LSM) . A self-described micro-economist, he is interested in economic agents and the use of digital technologies, especially the consequences of their use for economic actors. Thus digital platform strategies are at the centre of his concerns. ‘These platforms are intermediaries that facilitate interactions between different economic agents’, Prof. Belleflamme says. ‘Most often buyers and sellers, but not only: Facebook is a digital platform that promotes social links and serves as an intermediary between consumers and advertisers, but the platform produces nothing, it’s a facilitator.’ It’s a ‘market’ that has its particularities, foremost among which is the very active role of consumers/users. Their behavioural decisions are highly dependent on those of other consumers. In these markets, they consume interaction; to be alone there makes no sense.
‘Our choices will be guided in part by what we imagine others will choose. Consumers make decisions by trying to anticipate the effects of these decisions on the behaviour of other economic agents. This is why, in our analyses, we often use the tools of game theory, which makes it possible to analyse problems of multi-personal decision-making.’
Another of this economy’s very important features is that it produces a wealth of data, which is a boon for researchers who can thus check whether their theories hold up.
Sharing economy
It is in this research context that Prof. Belleflamme and seven colleagues from UCLouvain and UNamur imagined a collaborative research project (see box) on sharing platforms: PROSEco (Platform Regulation and Operations in the Sharing Economy). ‘The term is a bit hackneyed,’ the professor, who is the project’s spokesperson, almost apologises. ‘We always cite the examples of Airbnb and Uber, but where’s the sharing? Holders of goods and services (a car, an apartment) share their use. The platform intervenes as an intermediary to match needs. In a way, it has always existed; it's supply and demand.’ What’s new is the technological progress that has made it possible to find each other quickly, safely and at low cost. Think of yesterday’s hitchhiker ‘ordeal’ compared to the ease with which Blablacar shares a vehicle.
Such a platform becomes attractive with use; the more it’s used, the more attractive it is. ‘This is where a new element comes in’, Prof. Belleflamme explains. ‘It only works if you can create trust. That's what Blablacar did, for example, unlike some of its predecessors who disappeared because travellers didn’t show up at the start or didn’t pay, or because drivers were unscrupulous. What needs to be shared are not only vehicles but trust.’ Put simply, mechanisms established during direct contact over the long term must be reproduced in a virtual universe between anonymous parties.
Sustainable?
Six young researchers (PhD students and postdocs in economics, law or operational research) will be involved in PROSEco (see also Prof. Belleflamme’s blog); they have five years to answer a central question defined by the project’s managers: Is the economic model of sharing platforms sustainable for all stakeholders? To answer it, the researchers will work on three themes that form the project’s backbone: How do these platforms create and distribute value? How can they be designed with efficient and fair rating and examination systems (to address the key problem of trust)? What are the impacts of platform pricing policies?
‘Take Uber’, Prof. Belleflamme explains. ‘Its stock market valuation is high but the company makes no profit. To make one, it has to grow, because a platform of this type is feasible only if it’s very busy: having only a few drivers in a few cities is useless. It must therefore eliminate competition. This is what investors are betting on. For the moment, the company creates value only for users (it’s more efficient than a taxi network), not for investors, nor for drivers, who often consider themselves poorly paid and without genuine employment status.’ Is this model sustainable for all stakeholders, for society as a whole? Note that the project team includes lawyers because many legal issues arise, including the status of people who work for these platforms and the use of the data they generate. Nothing, moreover, guarantees that these models will exist in their current state when this research ends. Airbnb has begun building homes (as a way to eliminate those landlords subject to the same laws as hotels or to restrictions and taxes, for whom the system will lose its value) while Uber is considering autonomous car fleets (again, to eliminate the weakest, i.e. most costly, link, drivers whose status is threatened).
Henri Dupuis
ARCsThe Actions de Recherche Concertées is an initiative of the Wallonia-Brussels Federation to promote the emergence of new interdisciplinary teams. ARCs aim to develop university or interuniversity centres of excellence in basic research in areas considered a priority by academia. After declaring an expression of interest, the selected project managers must submit a project description, budget, outreach plan, etc., and defend the dossier before the Research Committee and external readers. ARCs last in principle five years and receive significant funding that allows for several researchers. |
A glance at Paul Belleflamme's bio
‘It was process of elimination that brought me to economics’, Prof. Belleflamme says. ‘In my family, law and medicine were already taken. And since I was neither 100% hard sciences nor 100% humanities, I found that economics was a good compromise. There is this intermediary link between the two because we finally do a lot of mathematics and modelling but at the same time we can communicate on everyday issues. Economics is the science of choice. We must understand how we make these choices, which are always constrained.’
He completed both a master's degree in economics (1991) and a PhD (1997) at UNamur. Prof. Belleflamme also holds a master's degree in economics from Columbia University (1992). In 1998, he was a lecturer in economics at Queen Mary University, University of London. Since September 2002, he has been a professor of economics at UCLouvain.
Prof. Belleflamme has published numerous articles in economics journals and is, with Martin Peitz, the author of Industrial Organization: Markets and Strategies (Cambridge University Press, 2010 and 2015). He teaches courses in the field of industrial organisation, focusing on the digital economy.