BSD113 Economics | Positive Externalities of oBike
oBike’s business model is founded on a vision of a stationless bike-sharing system and has been operating in several countries. It started its operation in Melbourne in June 2017 but had to terminate its business in this city in June 2018. oBike’s GPS (Global Positioning System)-tracked bikes have a built-in Bluetooth lock and its riders (customers) generally can leave the hired bikes anywhere at the end of a journey, not necessary at a docking station or designated parking space. Users can leave the bike in a public place for the next rider to use. However, this concept has gone awry as these bikes were littering streets, found dumped in parks, waterways and rivers, and found up trees and on roofs in the city. Other cities in Australia and overseas also shared the same problem. The Environment Protection Authority (EPA), the City of Melbourne’s council and affected residents were all up in arms with the way the bikes cluttered the city, found dumped and posing a hazard to people’s safety. In May 2018, new regulations were implemented by the EPA requiring oBike to clean up dumped or damaged bikes within stipulated times. These regulations required oBike to remove bikes creating hazards within 2 hours; bikes cluttering streets in huge numbers, damaged or vandalised within 24 hours; and bikes found up trees or roofs in 48 hours and in waterways in 7 days. The City of Melbourne was also given the power to fine oBike A$3,000 each time the company failed to comply. Besides having to operate under tight regulations, oBike also faced another problem that threatens the viability of its business. Criminals stole oBike’s bikes parked in public places and removed the GPS (Global Positioning System) tracking system and Bluetooth locking mechanism in these bikes, and try to sell the stolen bikes through social media. On 12 June 2018, oBike ceased its operation in the Melbourne market as the regulatory compliance costs associated with addressing indiscriminate parking of bikes has become too high for the company to remain viable.
1.1 Identify and explain the intended positive externalities from oBike’s stationless bikesharing system.
1.2 Identify and explain the negative externalities generated by oBike’s stationless bikesharing system.
Answer:
1.1 - Intended positive externalities of oBike’s stationless bike sharing system
The notion of a station less bike sharing system is that it allows the citizen to use a collection of bikes within the cities. Currently, this business is widespread in other countries such as the USA, Singapore as well. With this system, the citizens can avail cycles without having to take full responsibility for it. Now, according to economics, a positive externality is the additional impacts of the economic transaction on the third parties (Pigou, 2017). Positive externalities can reduce the indirect cost of the economy leading to a better welfare of the society.
In the case of oBike’s stationless bike sharing system, it is allowing the citizen to use the bikes without owning them. Therefore, citizens are intrigued to use bikes for shorter distances than any other means of the vehicle that creates pollution. Bikes are manually driven vehicles which can be a good tool to keep control on the increasing pollution level in most of the cities of the world. The use of bikes around the city instead of a motorbike reduces the chance of air contamination. This, in turn, reduces the likeliness of the citizen to catch a disease due to the poor air quality of the city. Consequently, the citizens as a whole, save the cost of treatment, which they otherwise would have incurred in case of a high pollution level in the city. Thus, oBike’s station less bike sharing system indirectly reduces the social cost (Hall, 2016).
Apart from that, another positive externality could be through the increase in the physical exercise of the users. As discussed above, bikes are manually driven vehicles which require physical effort from the users instead of external energies through fuels. van Waes, Farla, Frenken, de Jong & Raven (2018) stated that cycling is one of the important daily activities of human lives that prodigiously reduces the risk of heart-related diseases in the future. In that way also, the service of oBikes’s indirectly reduces the future medical costs of the citizen providing a positive externality to the society as a whole. A positive externality is also a market failure which eventually contributes to the welfare of the society. Therefore in many cases, the government acknowledges the contribution in order to have a higher welfare.
1.2- Negative externalities of oBike’s station less bike sharing system
Contrary to the positive externalities, negative externalities increase the social costs indirectly. The associated effects of few economic operations may affect the wellbeing of society as a whole. One such negative externality of oBike's station less bike sharing system is that it reduces the aesthetic values of nature (Posner, 2017). The main reason behind this is, the users of these bikes have no value for the bikes and hence they dump these bikes wherever possible. This not only damages the bikes, but it also becomes a mess for the environment. Many users put the bikes in places where both the value of bikes and the places reduce. For example, the bikes have been found dumped in ponds. This not only damages the bike, but it also affects the scenic beauty of the places as well. In many places, the bikes are so dumped that it can pose a threat to the safety of the people (Tietenberg & Lewis, 2016). These eventually can push the people of the society to incur an extra cost to increase their safety or to get rid of the threats. Therefore, the bike sharing system of the company is a negative externality.
Another negative externality of this bike sharing system is the fact that, it can give rise to crimes such as stealing, in the city. The bikes are not locked and they are fitted with a GPS device that can track each of the bikes within the city. However, it is easier for the stealers to break the GPS device on the bikes and resale it online other markets in or outside the country. Therefore, indirectly, the operation of the business can generate an illegal market in Australia. Furthermore, it can also develop a racket of bike stealing in the city as well. These illegal and unethical behaviours of the stealers may, in turn, affect the overall values of the society as a whole leading to a higher social cost. However, it needs to be noted that the government can always take control in order to reduce the negative externalities of an economic operation (Arthur, 2018). Intervention from the side of the government is important to save the market from failure.
References
Arthur, W. B. (2018). Self-reinforcing mechanisms in economics. The economy as an evolving complex system (pp. 9-31). CRC Press.
Hall, J. (Ed.). (2016). Explorations in Public Sector Economics: Essays by Prominent Economists. Springer.
Pigou, A. (2017). The economics of welfare. Routledge.
Posner, E. A. (2017). Coase Theorem. In Economic Ideas You Should Forget (pp. 101-103). Springer, Cham.
Tietenberg, T. H., & Lewis, L. (2016). Environmental and natural resource economics. Routledge.
van Waes, A., Farla, J., Frenken, K., de Jong, J. P., & Raven, R. (2018). Business model innovation and socio-technical transitions. A new prospective framework with an application to bike sharing. Journal of Cleaner Production.
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