Peer-to-Peer (P2P) Economy
What Is a Peer-To-Peer (P2P) Economy?
A peer-to-peer (P2P) economy is a decentralized model by which two individuals interact to buy sell goods and services directly with one another or produce goods and service together, without an intermediary third-party or the utilization of an incorporated entity or business firm. In a peer-to-peer transaction, the buyer and the seller transact directly with one another in terms of the delivery of the great or service and the exchange of payment. In a peer-to-peer economy, the producer is typically a private individual or independent contractor who possesses both their tools (or means of production) and their completed product.
Understanding a Peer-to-Peer (P2P) Economy
A peer-to-peer economy is seen as an alternative to traditional capitalism, by which organized business firms own the means of production and furthermore the completed product. Firms act as centralized delegates, selling completed goods and services to customers and hiring labor as important to carry out the production interaction.
A P2P economy can exist inside a capitalist economy. Open-source software (which is P2P) coincides with retail and commercial software. Services like Uber or Airbnb act as alternatives to taxi and uniform services or lodgings and motels, respectively. These companies act as crossovers between traditional capitalist firms and true P2P activity by giving intermediary services, including a network to interface buyers and sellers and cycle payments, however utilizing private contractors to deliver services directly to customers.
In P2P, with no third party associated with a transaction, there is a greater risk that the provider might fail to deliver, that the product won't be of the quality expected, or that the buyer may not pay. Reduced overhead costs and coming about lower prices could settle this extra risk.
Since providers of P2P goods or services own their completed product and means of production, the peer-to-peer economy is like the economic production of the pre-modern age when everyone was a self-producer, a system that was replaced by additional efficient economic systems that gave greater productivity and wealth. The Internet and the IT revolution have made the P2P economy a substantially more feasible system in the modern age, and have likewise prodded investment in service providers who, while not directly engaged with the production of P2P goods or services, act to make P2P transactions more apparent, more secure, and efficient.
The modern state of emerging P2P economies is just the most recent illustration of the Internet's value to consumers. The emerging Internet-empowered, self-producer model of capitalism is currently critical and disruptive enough for regulators and companies to have awakened to it. That is an indication of its colossal potential for such imaginative business models in years to come.
Capitalist Economy and P2P Economy
A few factors influence the advantages of sorting out economic activity into capitalist firms versus P2P economy. In capitalism, workers frequently don't possess the means of production, nor do they reserve any privileges to the completed product they have helped make. All things being equal, they are paid wages in return for their contribution to the firm's output, which then sells the product to customers. A capitalist system in light of third party firms enjoys upper hands over a P2P economy as generally increased productivity and proficiency of the production cycle due to economies of scale, management of the transaction costs of planning the activities of buyers and sellers, specialization and division of labor with respect to managerial ability and enterprising judgment, and the transfer of risk and uncertainty from workers and customers onto business owners, who have greater resources to retain likely losses.
These can address advantages over a P2P system. A P2P system will be less efficient than traditional capitalist firms to the degree that it confines production to less efficient scale; causes higher informational or other transaction costs; limits the division of labor between business managers, entrepreneurs, workers, and customers; or limits the efficient distribution of risk and uncertainty. This degree depends on the physical technology, social institutions, and characteristics of the population in an economy.
Economies of Scale
The production of certain goods and services is more efficient and less costly when they can be delivered in large amounts. Firms in a capitalist economy exist mostly to consolidate the capital goods and labor expected to create at large scale into a single location or operation to exploit these economies of scale. A few modern advances, for example, 3D printing, increase the proficiency of creating certain goods at more limited sizes, facilitating the adoption of P2P activity in those markets.
Transaction Costs
The organization of traditional capitalist firms not set in stone by the transactions costs of the different transactions engaged with a given production process. Gathering, sharing, and communicating information about quality, quantity, and the cost of goods, services, and productive data sources; planning, arranging, and upholding contracts; and distributing the control of [relationship-explicit assets](/resource particularity) are instances of transactions costs that can be reduced by orchestrating the activities of individuals in an economy into distinct business firms. Where technology, social institutions, or population characteristics can assist with diminishing these sort of transactions costs, business firms might be less required and individuals can efficiently transacted business on a P2P basis.
Information technology, for example, web search tools and online marketplace platforms that make it more straightforward for individuals to gather, share, and filter data about different buyers and sellers, is one clear road for facilitating P2P activity, while formal institutions, for example, a solid system of contract and tort law that increases the ability of individuals to make and implement business contracts or antitrust statutes that limit the ability of large firms to exercise market power to demand concessions from more modest counterparties, are another. A population of buyers and sellers with a higher social preference for trust and fairness may likewise be less dependent on sorting out business firms to defeat transaction costs associated with information asymmetries, principal-agent problems, and hold-up over relationship-explicit assets.
Specialization and Division of Labor
Business firms that act as economic middle people streamline on the utilization of managerial ability and pioneering judgment. They permit the people who have these capacities to represent considerable authority in applying them productively and the individuals who don't have them to work in different activities as wage-or pay paid employees. A P2P economy can find lasting success where there are mechanical tools that make it more straightforward for individuals to manage their own business and responsibility and to reduce the comparative advantage of practicing. A population of individuals who, for reasons unknown, end up having a better degree of management expertise or enterprising judgment might be more fit to benefit form a P2P economy.
Risk and Uncertainty Bearing
Future economic conditions are dependably uncertain and implies risk. Consumer preferences change, natural calamities happen, and economies go through business cycles and recessions. Business firms in a traditional capitalist economy bear these risks and uncertainties by being responsible for the profit or loss of the business, while giving workers a stable wage and consumers with a steady product. In P2P economic activity, without a business firm acting as intermediary, individuals bear a greater amount of the direct risks of running their own business and directly endure losses on the off chance that uncertain economic conditions betray them. Social institutions like a universal essential income, single-payer healthcare, or other social safety nets could permit greater P2P economic activity by expanding individuals' ability to bear the risk of being in business for themselves. A population of individuals who are just more tolerant of uncertainty and ready to face greater challenges could likewise be bound to be fit to P2P economy.
Features
- Factors influencing whether P2P or intermediated economic activity are more probable and efficient incorporate economies of scale, transaction costs, managerial and innovative specialization, and risk and uncertainty.
- Modern technology has assisted with expanding the ability of individuals to engage in P2P economic activity.
- A peer-to-peer (P2P) economy is one where individuals directly transact business or collaborate in production with one another with practically zero intermediation by third gatherings.
