The main justification behind local, state, and federal regulation is consumer protection. A few decades ago, before ubiquitous Internet access, this reasoning may have made some sense. But in today’s economy, information is in the hands of consumers due to social media’s user-generated content.

This means that regulators do not have to play as large of a role in protecting consumers. As the power dynamic continues to shift in favor of customers, the need for an expansive regulatory framework further diminishes.

Thanks to the disruption caused by Internet access, consumers have more power than ever before. In the past, customers controlled the buying decision, but products or services and information about them were controlled, or at least heavily influenced, by businesses.

Web 2.0 — which allows for user interaction, sharing, and collaboration — leads to a more consumer-friendly system. The sharing economy is just the natural extension of this, with its embrace of robust feedback systems.

Two of the brightest stars of the sharing economy, Uber and Airbnb, use post-service, dual-feedback systems where customers and service providers both leave reviews. This process reinforces positive behavior and weeds out those who make transactions difficult or unenjoyable. Customers learn that they can trust these reviews, and feedback allows companies to cut ties with those who consistently receive negative criticism.

Read the article “Social Media is Making Some Regulators Obsolete” on economics21.org.