Between an UBER Rock and an UBER Hard Place

The UBER story

UBER is a disruptive innovator (a fashionable term) or under the more old-school theories an example of the Schumpeterian creative destruction. It breaks the (sometimes centuries old) monopoly on taxi services in many countries around the world. For a competition lawyer certainly something that we have great sympathy for.

UBER’s activities in this regard seem also to be seen as beneficial by the European Commission, for example by Neelie Kroes (Vice-president and digital agenda commissioner and former Commissioner for Competition) and other commissioners like Elzbieta Bienkowska, (Commissioner for industry and the internal market) and Jyrki Katainen (Vice-President for Jobs, Growth, Investment and Competitiveness).

While this support certainly has to do with the positive attitude toward innovation, more self-serving interested could also be alleged:
1) Taxi services in Brussels are seen as notoriously bad (eg third last in friendliest taxi drives). 2) And for those who see the dark force everywhere, it can be seen as another attempt of EU to unduly engage in national or even local issues by dressing them up as pan-European.

As a disruptive innovator UBER’s strategy can be described as entering a market first and only then dealing with legal compliance. With this strategy UBER has faced obstacles in many countries, eg France, Germany, Spain and the issue is now being taken to the EU level. Similar things are happening also in parts of US, similarly in Canada, India.

One of the issues ligated in the US is whether UBER has to be seen as the employer of its drivers.

UBER and Competition Law

My argument here is that appealing such a decision might have considerable downsides and that being considered an employer might be in the best interest of UBER.

The alternative to being an employer may be even more dramatic: facing competition law challenges, with potentially huge fines, imprisonment and treble damages (at least in some countries).

Such a claim which has be raised before a court in Canada alongside the more classical claims of breaching local taxi monopoly laws is an interesting one (and it is not without irony that a monopolist taxi company may be using competition law to get rid of rivals).

How would such a competition law claim look like?

UBER itself is not directly providing taxi rides. UBER is (only) offering a platform for drivers to offer their services to customers.

The important element here is that UBER co-ordinates the prices for the different drives by means of an algorithm.

Such a configuration has the form of a so called hub-and-spoke cartel. This is a form of cartel where the original cartelist do not communication directly with each other but rather use an intermediary who arranges the cartel. This intermediary while not directly active in the cartelised market will however also incur antitrust liability. A recent example is the EU case of AC-Treuhand by the CJ (Court of Justice).

In the present case UBER would profit from the cartelised market as its fees are depended on the rate charged by the drivers. What complicates the UBER case is the fact that UBER is not directly fixing the prices for the driver. But uses it is the said algorithm to determine the price.

Horizontal price fixing between competitors by means of an algorithm may be a new phenomenon but it should not create an obstacle for antitrust liability. It should not be seen as being different from a normal hub-and-spoke arrangement. (On this matter see also Maurice and Ariel’s paper ‘Artificial Intelligence & Collusion: When Computers Inhibit Competition’ which nicely shows the options that the antitrust enforcers have in attaching antitrust liability to companies when artificial intelligence is involved).

Additionally, it may be noted that there is evidence that the algorithm leads to higher prices.

However, clear evidence of higher prices seems not be necessary. The fact that co-ordination of prices between competing drives (absent the cartel), as hard-core restriction should be considered as object restriction (EU) or per-se violation (US). Which would mean that it is quite unlikely that antitrust liability can be avoided. (On the challenges of the object and effect distinction in EU competition see my and Maria’s recent paper.)

While in the EU it may be possible to advance the pro-competitive effect on the “taxi-market”, the arrangement would fall short of the final requirement of Article 101 (3) TFEU. The arrangement does eliminate (price) competition entirely. Compare in this regard the Airbnb pricing model where the people offering their services on that platform offer competing prices.

While it may also be possible to argue that UBER’s model is employing an agency/franchise model. It would be a risky strategy. It involves the risk of being classified differently by the competition authority/court and the difficulty that it could be seen as fixing the retail price. An issue that can be seen as a per-se/object restriction.

In such a situation, where an antitrust infringement seem quite likely it might be less risky (and cheaper) for UBER to advance the argument that it is employing it’s drivers. It would thereby escape any risk of antitrust liability by means of the EU’s Poucet et Pistre case law (workers are not undertakings) or section 6 of the Clayton Act in the US.

Final comment

At the end, a note on the likelihood of enforcement action: Given the support of UBER at EU level and the fear of being seen once more as targeting US companies in protectionist manner, enforcement action in the EU is not likely. Yet, in a world where the International Competition Network has 336 members, there are still a number of competition authorities -and in some those countries private enforcement (and possibly powerful)- that may decide to get involved.

[Edited, sorry some of the links didn’t work as I copied and pasted them wrongly, but I fixed them, now they should work].

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