The New Innovation Battlegrounds Are City Hall and the State House

Colorado is currently considering proposals to outlaw Uber and other services that enable passengers to book a car service from their smartphones. Uber and its competitors face similar challenges from Los Angeles to Las Vegas to Washington, DC.

In May, the North Carolina State Senate voted unanimously to prohibit Tesla Motors, the innovative electric car company, from selling cars directly to consumers, including via the Internet. The Texas legislature recently retained similar prohibitions until at least 2015.

Also in May, a New York City judge issued a $2,400 fine to an East Village resident who used Airbnb, the fast-growing online marketplace for home sharing.

What's going on here? In cities and states across the country, two forces are engaged in battles with major consequences for the future of the Internet and the U.S. innovation economy.

The first force is new ventures harnessing technology--particularly the Internet and mobile--to challenge incumbents in a growing number of industries: From hotels (Airbnb) to rental cars (ZipCar, RelayRides, Car2Go) to taxis (SideCar, Lyft, Uber) to car dealerships (Tesla) to parking lots (Parking Panda) to textbooks (Chegg) to lending and fundraising (Lending Club, Kickstarter) to restaurants (food trucks) to boating (Boatband, GetMyBoat) to errand running services (TaskRabbit) to Internet service (Chattanooga, TN; Lafayette, LA; Google Fiber).

Many of these ventures are part of the new "sharing economy." They are platforms that enable people to share things they own with others for a fee, sometimes called collaborative consumption. The new entrants are benefitting people throughout the country, saving them money, addressing real pain points, and offering new and better services.

And they're finding large and growing demand: The global "sharing" or "peer-to-peer" property rental market is estimated to be more than $25 billion per year. Analysts predict more than 4 million North Americans will use a car...