The rise of the sharing economy has generated great regulatory challenges. The European Union (EU) has to perform a fine balancing act. On the one hand, it has to safeguard weaker parties, consumers, and workers, ensuring they enjoy a fair treatment by adopting proper regulatory responses. On the other hand, since the sharing economy offers innovative solutions to common societal and consumer problems, the EU wishes to tap into its full potential. It is hard to strike the right balance between innovation and regulation. This paper contributes to the hot debate on how to regulate the sharing economy without stifling innovation, by examining reputation systems and their function as self-regulatory mechanisms.