Is it possible to build a better Uber?

From FTC/DOJ December Workshop December 7, 2021

Marshall Steinbaum:

Sure. Yes. I was delighted to have John bring up the subject of gas stations, because they’re one of my favorite things to talk about in antitrust, and in particular, the case US Richfield oil from 1951, which concerns the resale price maintenance and exclusive dealing of contracts that a dominant oil refinery imposed on gas stations.

Marshall Steinbaum:

And in the ruling on that case, the judge said very explicitly, these gas station proprietors are not employees. They are independent business men, in the lingo of that era, and therefore they have the right to operate independently of these coercive contracts employed by the dominant oil refiner. That exact jurisprudence is at the heart of… Or I should say there be a repealing, the overturning of that jurisprudence is at the heart of the gig economy. And also explains why… The example that John was mentioning where you have two gas stations on opposite corners agreeing to fix prices, that’s illegal.

Marshall Steinbaum:

They decide to merge, or maybe we do catch that under our merger review process, but they just both decide to affiliate with the same oil refiner, and fixed prices that way. Almost no question. They’re not going to be targeted by existing antitrust law, and that goes very strongly in the case of the gig economy as well. You have a business model that depends almost entirely on the vertical restraints that a dominant platform imposes on supposedly independent contractors operating on their platform that are engaging in bilateral commerce with customers to which the platform’s not a party. Oh, but the platform actually sets prices for that commerce. And it does so in such a way that the drivers not employ steering methods in order to direct customers to platforms that take a lower share of what they pay by charging lower prices.

Marshall Steinbaum:

So in the… But [for a] world, Uber drivers or any drivers for any ride share platform, would be able to set lower prices on platforms that have a lower take rate, and thus enhance platform competition in the ride share market. Recently, there was an antitrust claim by a sidecar former competitor of Uber that entered the market in California, and their business strategy was basically to offer better terms to drivers.

Marshall Steinbaum:

Uber drove them out of the market using predatory pricing, using tortious interference, they submitted all sorts of fraudulent ride requests to the platform in order to prevent sidecar from servicing their customers. That succeeded, that strategy by… That monopolization strategy by Uber succeeded in gaining control of the market. The motion, or the antitrust claim by sidecar, survived the motion to dismiss, and now that case has been settled, but that speaks to the counterfactual of healthy platform competition, and the degree to which the vertical restraints that have been immunized from antitrust liability by the current antitrust regime are behind that absence of platform competition.

Marshall Steinbaum:

So, as I said, direct price fixing, I mean, John himself said, the Supreme evil basically at antitrust is price fixing well, [richer] companies do it all the time. That also pertains to non-linear bonus based pay. So these are basically incentives for the drivers to accept as many rides as possible from a given platform. And then they get a lump sum, but that reduces their labor supply elasticity, this would be the platform on any one ride that can push down, pay and force them to accept rides that are less advantageous to them.

Marshall Steinbaum:

There’s minimum acceptance rates. So all of what I’m saying is basically the sort of propaganda that you hear from gig economy labor platforms is, ‘Oh, the drivers love flexibility. So they shouldn’t be employees.’ Well, the platforms do not provide flexibility. What they provide is control in the absence of fulfilling their obligations as employers, I should also mention, I was very glad to hear Chair Khan on her opening remarks yesterday, refer to UDAP claims unfair and deceptive acts and practices as potentials, having got competitive significance.

Marshall Steinbaum:

And she referred to the gig economy where, as we’ve seen over and over again, including in the sidecar example, I previously referred to, you’ve got a deception and unfair practices used to monopolize a market. And then you just basically sit back and cash out. And so those UDAP claims essentially are components of the monopolization of the market. That’s also the case. I mean, even on going now in the gig economy, again to speak to this actual absence of flexibility and autonomy on the part of drivers.

Marshall Steinbaum:

They don’t get told the destinations of the ride before they accept them. They don’t get told the fair they’re going to be paid before they accept or reject them. The premise of the idea that the drivers are correctly classified as independent contract, is that they have the autonomy to accept or reject the rides that are offered to them on the platform. And that is just functionally, not the case in practice.

Marshall Steinbaum:

So in summary, I would say that a crucial component of closing the sort of gray area that writes a broad boundary of the firm when it comes to antitrust through the use of vertical restraints, versus a narrow drawing of firm boundaries when it comes to labor law and obligations, as well as sectoral regulation. That gray area of basically the absence of any part source of liability from all of these areas of law is what enables the gig economy to exist. And a crucial component of improving the livelihood of workers within the gig economy is to close down that gray area. And that should be an enforcement priority of the federal agencies and particular, the agencies that have experienced litigating the Sherman act to partly address of gig economy work, and its substandard aspects.

The short answer is no. The only way to compete with Uber is to offer an alternative price-fixing platform, such as Lyft, or DoorDash. In order to build a better Uber, the Uber itself must first cease to exist. A platform, such as Sidecar, will likely settle with Uber when pressing claims for damages subject to Section 1 of the Sherman Antitrust Act and unfair advertising claims.

It is the job of the government (US-DOJ and US-FTC) to prosecute Uber on price fixing charges, where the price-fixing scheme is simply unable to pay off the Plaintiff.

Author: Litesand

Antitrust, real estate, e-commerce, fintech, proptech, bigtech

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