In a previous post, we looked at Sanjukta Paul's theory that 'coordination rights' are created by Law and thus should be allocated in the public interest. What does she mean by 'coordination rights'? The answer is, she means the right to sack or otherwise penalize a person who does not do are told or as has been agreed. When a firm sets a price, an employee of the firm who sells a different price for a consideration can be sacked or demoted or even charged with a criminal offence. On the other hand, when a bunch of independent tradesmen get together and set a price they are not allowed by law to beat or otherwise penalize one of their number who gets greedy and charges a different price so as to get a larger share of business.
Why this asymmetry? How come your boss can destroy your livelihood and wreck your marriage by sacking you for cause, whereas it is per se illegal for your fellow rent-boys to take a razor to your face for undercutting the going rate for a bj?
The answer of course is Neo-liberalism which is very evil and constantly shitting on ordinary people coz the 1% tell it to.
Paul has written a paper about Uber where she states-
If the members of a hiring hall, run by a labor union or directly by workers, were independent contractor service providers, it would be engaging in impermissible price-fixing under the conventional interpretation of antitrust law.
An independent contractor may not herself be a worker. She undertakes to complete a job with personnel of her choosing. Such a person would not be permitted to avail of a 'hiring hall' because she would not herself be hired- rather she would be making a profit on the labor of the person she chooses to send to get the job done. This worker may be an irregular migrant or vulnerable person. Indeed, one 'independent contractor' could take all available jobs, if permitted to enrol in the hiring hall, and get the other members to do the hard work at a lower wage. Thus, a hiring hall can't enrol 'independent contractors' who may themselves hire its members.
If a Labor Union knowingly permits its hiring hall to be used by 'independent contractors' rather than genuine workers (whatever else they may do in their spare time) then it is likely that some infraction of its bylaws, or of the law of the State, has occurred. It is possible, I suppose, that a price fixing cartel may seek to fraudulently pass itself off as a hiring hall. But, it may also try to pass itself off as a 'producer's cooperative' or a 'benevolent association' or some similarly innocuous sounding entity.
Yet Uber has thus far been permitted to engage in precisely this sort of price coordination between independent contractors -- for its own economic benefit, rather than workers'.
Paul is saying Uber drivers are not employees. They are independent contractors. Thus Britain and France are wrong to class them as employees. Moreover, these wicked 'independent contractors' have conspired with Uber to fix prices. If Uber is punished for price fixing, they too should be punished but can't be because of a 'labor exemption'.
Uber is operating a virtual, for-profit hiring hall, and it is doing so on terms that would not be allowed to workers themselves.
Why not? There has been no such determination in Law. Union hiring halls do fix prices. Only if they egregiously limit competition- for e.g. by forcing the customer to pay for both the worker they are allotted and the one they desire to employ- will a statutory body (like the Federal Trade Commission) intervene.
It has thus far been permitted to do so simply because it is organized as a business firm.However, Uber’s model pushes against the limits of intra-firm immunity from price-fixing liability, which has long been an assumption of antitrust law, and it reveals how a firm’s relationship to workers interacts with the justifications for this assumption.
This is nonsense. Uber's competition is from other ride-hailing apps or taxi companies. It may be guilty of 'exclusionary conduct'- e.g. predatory pricing or forcing drivers to become employees under an exclusivity contract- in this regard.
Paul says ' In two recent high-profile cases,
Meyer v. Kalanick and Chamber of Commerce v. City of Seattle, Uber has
pressed against drivers’ coordination on antitrust grounds, while seeking to
protect its own price-coordination activity from antitrust scrutiny. These
litigation positions serve to dramatize a tension that inheres in status quo
regulation of Uber and of independent contractor service providers more
Paul is shedding false light. Meyer's initial complaint was against Uber drivers,
not Uber. Kalanick (ex-CEO of Uber) was only added to the complaint after he admitted he had driven for Uber. The case is about illegal price fixing (in particular w.r.t 'surge pricing'). However, because workers are not normally prosecuted for price-fixing, and in any case have no money to pay damages, it was Uber which stood to lose a lot of money- more particularly in connection with its IPO.
The second case is against a law passed by the City of Seattle with respect to Unionising Seattle Drivers such that they could take collective action to enforce a 'closed shop'. It is this power to exclude potential drivers who don't wish to join a Union which is being termed 'per se' illegal.
Clearly the Chamber of Commerce wishes to push back against this sort of legislation. Perhaps it hopes to make the Province a 'Right to Work' state.
It is not the case that Uber has done one thing in one case and the opposite in another. However, even if it had done so, no 'estoppel' type requirement of consistency would arise. The Law knows of no 'deeper logic' which requires consistency- more particularly of the bizarre type that Paul envisages.
The paper shows that in a contemporary service economy that increasingly relies upon work performed outside the bounds of the employment relationship, the firm exemption in fact leads to a regulatory inconsistency.
' Firm exemption' is a figment of Paul's fevered imagination. She writes '...a hiring hall is set up to distribute that premium (i.e. the union wage less the market rate) to
workers themselves, while Uber is not. And there is a problem: the labor
exemption, which is the ultimate authorization of a hiring hall’s economic
coordination, neither applies to Uber’s coordination as a doctrinal matter nor
ought it protect Uber’s coordination as a normative matter. That leaves what
we might call the firm exemption.'
Is Paul correct? Does Uber say- 'we are a hiring hall'? No. It says it sells a software license to drivers and is remunerated by the drivers for their use of its services.
Paul is welcome to believe in any doctrine she pleases and subscribe to norms of a wholly antagonomic kind. However, as a matter of both fact and
legal doctrine, Uber is not a 'hiring hall'. It is a transportation network company which uses advanced software. Paul may say she thinks Uber is like
a hiring hall. But this thought of hers doesn't make it so. She may further say, 'Uber is violating the norms of hiring halls', but this is not a normative violation because Uber is not
a hiring hall. I may say Uber is like my neighbour's cat. When it rains, I look for both in vain. I may go on to say that Uber is very dirty because it does not lick its arsehole clean the way the neighbour's cat does from a sunny ledge directly in front of my study window. But my assertion to this effect has no probative value. It is wholly prejudicial.
Paul herself observes in a footnote, 'A job placement agency is, like Uber, a for-profit firm and it also refers workers
or service-providers to a third party that engages those services. But job placement agencies do not
typically set the pay rates or wages of individuals whom they refer, whether those individuals are to be
employees or independent contractors; they collect a flat fee for the placement rather than a percentage.
Paul is wrong. There are baby-sitting and tutoring and typing Agencies which will send round a qualified person to look after your kids or do their homework or type up your dissertation. They advertise their hourly rates. You pay the babysitter or tutor or typist or whatever and they hand over the Agency's cut to the Agency at the end of the week.
Such Agencies may have their own version of 'surge pricing'. Baby sitting for a Friday or Saturday night may be more expensive. Tutors may cost more during Exam time. Typists in University towns put up their prices as theses' deadlines closed in.
Large Agencies, however, have a more complicated pricing structure and offer a wider range of services. However, the 'surplus value' they extract tends to be much greater than Uber- which is why ordinary people don't use them. Uber, by comparison, is as cheap as chips because its margins are low by comparison.
Is Unionisation a panacea? Not if the labor supply pool is diverse and has different elasticities. This is the crux of the problem. The old fashioned 'countervailing power' thesis crumbles where there is little or no basis for solidarity.
This problem can be remedied, however, by permitting independent contractor service providers, such as Uber drivers, to engage in collective action with regard to their bargains with the firm that sets prices in the services they perform.
A better outcome is for Uber drivers to be treated as employees- as happens in the UK and France, more particularly because these countries don't share America's 'hire & fire' culture. Unionisation of independent contractors is not per se
illegal but it is difficult to achieve and sustain because of the elastic component of the supply curve.
Paul writes 'Over much of the last century, the law of price-fixing grew away from
considering market power and related considerations, and toward an
intensification of the per se rule about price coordination (and economically
equivalent coordination by sellers, such as coordination of supply). The
apotheosis of this tendency is well-represented by Trial Lawyers and
Professional Engineers. Both cases involved groups of individual or micro-enterprise service-providers whose coordination or collective action the
Court deemed to be price-fixing while refusing to consider whether the
coordination or resultant prices were reasonable. In Professional Engineers,
even coordination over non-price elements of consumer bargains (safety and
quality standards) within a professional trade group was deemed anticompetitive. Trial Lawyers censured collective action by a group of panel
attorneys who represented indigent defendants and were paid low hourly
rates, rates that essentially all the relevant agreed did not serve public
policy. These are precisely the cases cited in the City of Seattle complaint
for its core theory.'
I think the above is disingenuous. Engineers and trial lawyers could
form a Union and stipulate a minimum rate for different types of work. What the Engineers were not allowed to do was prevent members from bidding against each other for jobs. The Trial Lawyers case was atypical in three respects, firstly it was against the Government, secondly it was by lawyers who, as officers of the court, are held to a higher standard, and, thirdly, because it succeeded. The Supreme Court clarified that the Noerr doctrine
or Clairborne Hardware
decision can't be used to extort higher pay from the Government itself. The 'expressive content' here is not protected. Indeed, we may feel it a low lawyerly trick to pretend that a pay demand by shysters is linked to a noble cause like Civil Rights! It is not reasonable to let officers of the Court use boycotts to get higher and higher wages for themselves by pretending they are the victims of historic oppression and continuing discrimination.
Unionisation is not a per se
violation of anything. There are occupations vital to National Security which have a no-strike rule but where Unions still exist.
When it comes to independent contractors, it is perfectly permissible to have rules about minimum pay for apprentices or journeymen, to prevent a repugnant type of competition. This may go hand in hand with raising the entry requirements or length and difficulty of professional studies. However, restrictions on trade which suppress price and quality competition will tend to ossify the trade and lower its productivity. It may well find itself made obsolete.
Returning to Paul's thesis, we find Paul's line of argument is harmful to Uber drivers because it is predicated on their lacking any element of employee status. Unionisation as employees is a superior outcome to unionisation as independent contractors. However, such unionisation can't be achieved by municipal law. State law- maybe because there is a State exemption. However, local authorities have other ways to restrict supply and push up wages- if that is their objective.
This paper thus furnishes an argument in favor of collective bargaining rights for this group of workers that relies neither upon employee status, nor upon independent reasons in favor of collective bargaining, but rather upon a simple principle of consistency in applying existing price-fixing norms.
If the Law were nomothetic, not idiographic, then an abstract argument from 'consistency' might be persuasive. However, in this field, such is not the case.
Paul writes 'Absent a loss in Kalanick, Uber continues to derive such a
premium from its price coordination;
that it stays in the business. If it didn't collect a premium it would quit the business. But, simply by being in business, it draws in competitors who use a similar technology but who may have a different business model allowing independent contractors to differentiate themselves on the basis of price and quality of service.
' absent enforcement of a regulation like
Seattle’s, drivers cannot coordinate in bargaining a share of that premium
Sure they can!- by unionising the old fashioned way- i.e. beating the shit out of 'black legs'. Alternatively, they could lobby local government to impose some additional compliance cost on marginal Uber drivers- e.g. having to pass a test, give fingerprints, paint a logo on their car, wear a uniform etc, etc
Getting the city to pass a law is not good enough. You have to lobby the State Legislature to get a State wide law Unionisation law passed.
put it another way the regulatory status quo permits Uber to evade price-fixing norms in its bargaining with consumers,
There are no 'price fixing norms' here. Uber isn't bargaining nor is it artificially restricting supply. Thus it isn't price-fixing at all. Kalanick was about getting a Jury to react angrily to stories of how 'surge pricing' hurts little old ladies and thus award millions in damages. Sadly, a higher court held that the customer had signed away his right to a jury trial and thus would have to go to arbitration.
Similarly there is no norm which is being violated when Seattle's unionisation law is struck down. This does not mean Seattle's Uber drivers can't unionise, they just have to do it the old fashioned way. Paul disagrees. She says the regulatory environment
'does not allow drivers to
evade them in its bargaining with Uber.
This is false. They can have an old fashioned strike and spend a lot of time making bogus calls to 'strike-breakers' whom they proceed to beat the shit out of.
If we agree that price-fixing norms
either ought to govern the price of a given service, in this case ride services,
or not, then status quo regulation contains a tension.'
This is nonsense. Uber isn't restricting supply, nor is demand inelastic, so it isn't price fixing. Striking workers demanding higher wages are not considered to be price fixers either. The exception is highly educated officers of the Court who are extorting the Government itself.
In the remainder of this post we will examine Paul's assertion, in an panel discussion hosted by Forbes, that Uber is a price fixing conspiracy.
Paul: Uber is the conspiracy. Antitrust is fine with conspiracies when they are controlled by concentrated capital, and engage in coordination through hierarchy.
Manne: Wait, Sanjukta: Uber is a “conspiracy”?!?!?
Beggs: Apparently, there is a fine line between “price fixing” and “a business having a list price,” but I guess this just comes back to the semantics of Uber's business model definition.
Britain and France thinks Uber is coordinating a lot more than price and thus drivers are employees and should be treated as such.
Manne: So, the claim is that Uber engages in price fixing with its drivers? But it doesn’t coordinate with them. It offers them a service, at a take-it-or-leave-it price.
If Sanjukta is a 'conspiracy' Uber drivers are not employees, they are criminals. They don't deserve statutory protection re. minimum wages, holidays etc anymore than my pimps do (what? I only turned to sex work in late middle age and thus haven't yet had any customers though I regularly contact my pimps who all confess to be working their butts off to get me a client. I may mention that I am campaigning for the abolition of gender based discrimination in the remuneration of sex workers.
Paul: Geoff, how do you justify Uber’s price-setting for rides under the status quo antitrust rules that, as I understand it, you generally think are doing fine?
Manne: How do you justify any business setting a price for anything?
Paul: Geoff, is it your position that Uber sells rides?
Manne: Uber does not sell rides. Uber sells logistical services. The service it offers to drivers is different than the one it offers to riders.
Paul: Does Uber sell rides to consumers?
Manne: No, Uber does not provide rides.
Singer: I want to get Jodi Beggs in here for the econ take. Let's assume the FTC is motivated by a desire to promote competition. Let’s imagine a parallel universe in which Uber’s drivers can coordinate on their wages or “wage shares” (the portion of the fare captured by the driver). What is the harm to competition, assuming no increase in fares, if the effect of the drivers’ coordination is merely to increase the wage share from the current 61 percent to (say) 75 percent? Or is it not possible to shift the wage shares without also increasing fares for passengers?
Beggs: Well one important distinction I would like to make for starters is between “impossible” and “not profit maximizing.” Impossible? Probably not, given that Uber’s business model generally seems to be to eat through endless VC money anyway. But yeah, if it was maximizing profit before a pay increase to drivers, then continuing to maximize profit would most likely result in higher fares to riders and fewer rides sold. One interesting thing is that the drivers could be less likely to feel the “fewer rides” part of this, since they are very small compared to the overall rideshare ecosystem. (In other words, the change might manifest itself as fewer drives rather than drivers each giving fewer rides.) This creates different calculations regarding higher fares for drivers versus for the company.
Manne: The set-up to Hal’s question is all wrong.
Singer: Thanks. Framing is everything.
Manne: It’s just not a sensible way to look at this issue. Ride-share drivers don’t earn “wages”; they’re not employed by Uber or Lyft or other transportation network company (TNC). They earn fares from riders (at a rate set by the TNC), and the TNC keeps a portion of that in exchange for the service it provides in offering the platform. Like a franchisor. Or… anyone else selling a service. So Uber drivers are users, in this set-up, somewhat akin to input providers (or consumers). To answer your question, Hal, cartelization by drivers to drive down the price they pay Uber would likely lead to higher rider fees, or most likely it would.
Singer: Sanjukta, could this be the policy basis for the FTC’s intervening in the way it did? To keep fares low? I’m just trying to help them out.
Paul; First of all, if you believe Uber’s own account of what it does, you shouldn’t think of the coordination as a wage share. According to Uber, drivers sell rides to customers, and Uber sells the use of software to both drivers and riders. Well, then the use of the software is an input into drivers’ production process, and allowing drivers to bargain in their bargains with Uber lowers the cost of an input, not vice versa. So prices drivers can charge should go down (on this logic).
The driver's production cost includes the cost of petrol. If Uber is a conspiracy, so are the petrol companies because they too fix their offer price. Drivers also need to eat food. Supermarkets are a conspiracy coz they fix prices.
No doubt, there is competition between petrol companies and Supermarkets but so is there competition between different types of cab companies.
It may be that if firms are not allowed to fix their prices and have to bargain with each and every customer then some people, being more obnoxious or intimidating by nature, may pay less for everything. Indeed, they may not have to pay anything if they are smelly or intimidating enough. But this would not be good for the majority of people.
Paul's Indian ancestors had a tradition of haggling. This was because people were under-employed. They had time to spare but money was scarce because productivity was so low.
Singer: In her new paper, Sanjukta argues that Uber’s own coordination on its pricing of ride-hailing services would constitute impermissible price-fixing under the FTC’s construction of Section 1 of the Sherman Act that barred drivers’ collective bargaining. And yet the FTC is not pursuing Uber on price-fixing grounds. That sounds like hypocrisy. Sanjukta, can you break this down for our readers? What allows the FTC to embrace these seemingly contradictory positions?
Paul: Sure. The construction of Section 1 operative in the Seattle case says that price coordination between drivers is impermissible price-fixing, per se.
Why do we, as voters, want this? It is because there is an element of 'local monopoly' in services and retail. We want there to be competition between tradesman and shopkeepers and cabbies because this means we get better quality and lower prices. The alternative is high prices and shoddy service because demand is low and, anyway, local suppliers don't want to piss each other off by being seen to get more customers.
Suppose you come out of the railway station and see a line of cabs. The first cabbie quotes an outrageous price. You go to the next. He quotes the same price in an even surlier tone of voice. So do all the others. You decide to walk. However, the disabled person who got off the train with you does not have that option.
Now consider what happens when a person of a stigmatized minority shows up. By prior arrangement, all the local tradespeople quote extortionate prices. They may not be prejudiced themselves but they have to toe the line or risk appearing greedy. That is the problem with price-fixing. Participants jealously monitor how many customers the other guy is getting. They disapprove of 'quality competition' and may demand a share of any extra business which is derived in this manner. Sooner or later, someone gets their skull cracked open or their place of business torched.
It is a good idea to make this sort of collusion illegal per se
because where crimes are committed you catch only one or two losers forced to play the heavy on behalf of what is actually a joint enterprise.
By contrast, a Corporation has clear lines of command and can be more easily prosecuted for exclusionary conduct. Its deep pockets can pay big fines. It can be forced to implement non discriminatory policies whereas a collusive arrangement between a lot of little agents would be very difficult to disrupt.
For that reason, the Chamber of Commerce contends that the local ordinance that previously authorized that coordination is preempted by federal law.
However, the State could affirm it and thus gain 'Federalist' protection.
Meanwhile, Uber unilaterally sets prices for rides charged by drivers, the same drivers antitrust supposedly regards as competitors barred from coordination themselves.
They are not barred from forming a company or a partnership or other such unitary enterprise.
I’m sure we’re going to get further into details of the law here, but on a big-picture level this just doesn’t make sense. The FTC presumably ultimately cares about effects on riders (according to its description of its consumer-welfare mission) and cares about drivers’ bargains with Uber to the extent that affects consumer prices, as we just discussed. And they are subscribed to the idea that coordination of prices is bad for consumers. OK, in that case, how is it that price coordination is fine when laundered through a well-financed corporation, but not when the little guys do it?
The well-financed corporation is easier to prosecute. If collusion were legal, then big corporations would dissolve into an invisible alliance of seemingly independent limited companies. Thus, there would be no BP to prosecute for an oil spill. A few limited companies would go bankrupt but no damages would be paid to clean up the environmental damage.
And if you want to distinguish between the types of coordination here (on consumer prices vs. bargains between drivers and Uber), shouldn’t direct coordination on prices to consumers by Uber be much worse from the standpoint of ultimate consumer welfare, on this logic?
No, because drivers have more 'local monopoly' and can practice 'price discrimination' more effectively. The 'gypsy cab' outside the nightclub which takes the drunk home can charge much more on the basis of perceived ability to pay. There is also the greater possibility of rape.
Paul: I’m trying to understand the straightforward appeal to “firms set prices” here. I hear you and Geoff saying that Uber is setting a list price for a good or service like any business. But also that it doesn't sell that good. Geoff, do you think I as a firm have the right to set prices in a market I'm not myself (as a firm) involved in?
Neither retailers nor wholesalers produce the things they sell. Paul may think this represents some terrible wrong.
At a minimum, we are way beyond any consensus understanding of what firms do at this point.
This is not true. There is a consensus that shops have the right to sell stuff they don't produce.
Beggs: Use the Kindle store as an example. Over the last eight or so years, we've seen pricing rights allocated both to the publishers and to Amazon regardless of who is viewed as selling a Kindle book, the pricing authority can be held by a different party.
Paul: This is the whole point. This sort of “pricing right” is novel. And Amazon has the same problem!
This is nonsense. Uber is doing the same thing as radio cab companies which set prices and provided customers for owner drivers.
Bookstores sold some books at the publisher's price and some at whatever price they wished.
Paul: Even crediting all of this, none of it affects the comparison at issue here: between Uber’s coordination of consumer prices and drivers’ hypothetical coordination in their bargains with Uber. The considerations you’ve identified all regard the consumer price, so these “efficiencies” could all be realized by Uber’s coordination while drivers coordinate as to their bargains with Uber.
In the UK, Uber drivers are considered to be employees whereas they are independent contractors in the US. One reason, British law is different is because employees are on PAYE whereas there is self assessment for income tax in the US.
Nobody can be compelled to work for Uber or any other company. A coordinated strike by Uber drivers would not be illegal in either Britain or America because it would consist in drivers not logging on. They can't be compelled to do so. But Uber can't be compelled to bargain with drivers either.
Paul: As I’ve said, I don’t think antitrust should hold out the “no-coordination case” as the normative benchmark for appropriate prices—or anything else. So to be clear, I do not think price coordination is a bad thing. However, I think selectively applying the no-coordination norm—to drivers but not to Uber—is wrong and harmful as well as inconsistent under the positive law.
Drivers can set up a firm or a partnership in which case they will be treated the same as Uber. Suppose Uber had not incorporated itself and was just an informal network. Then it may have been prosecuted for price fixing.
It may be that illiterate people in the India of Paul's ancestors could not set up limited companies because they lacked any such concept. However, this is not the case in America.
That said, if we are consistently applying the law, you don’t have to show that consumers paid higher prices. That is not a legal element of a price-fixing case. That’s what makes it per se!
Indeed. There are many things which are per se illegal- like shooting at a person- even if no harm is done or, indeed, some benefit accrues to the victim. This is because of a presumption that collusion is bad for the customer while competition is good for her.
Suppose firms were not allowed to coordinate the actions of their employees. Then if a Bank teller refuses to let you cash a check unless you show her your boobs, management can do nothing. They can't demand that employees behave in a certain way- not as they themselves think best- to customers.
And that would apply to a hub-and-spoke arrangement like this one, as indeed Judge Rakoff held before Uber got the Second Circuit to kick the case to arbitration.
But this was because of an arbitration clause in the contract most drivers signed. Still, some did manage to get a payout from Uber.
Finally, if you get into rule of reason territory and you’re able to convince a judge that the consumer welfare standard justifies Uber’s coordination but not drivers … well, at that point I don’t see a clearer indictment of the consumer-welfare standard.
If drivers are allowed to collude, they may make it a condition of giving a desperate client a ride that he show his boobs. I'm not saying this has happened to me yet, but you will readily understand my fears on this score.
Paul may think anti-trust law should exist for some reason other than to protect consumer-welfare. But what might that be? Why would tax payers want to fund a type of law from which they gain no benefit?
Manne: Uber, et al. don’t even need to rely on efficiencies. First, they could argue they not coordinating anything, so go blow. Second, the alleged restraint is an ancillary restraint — i.e., it’s not the primary object of an agreement, but it’s necessary for the proper functioning of the objectives envisaged by an agreement. And third, the courts don’t really do per se much anymore, so efficiencies are more like the a priori debate over whether we condemn the conduct under per se or not (see, e.g., the Apple eBooks case (especially the dissent)). But, of course, over and above all that, there are efficiencies.
Paul: Hal, this is my least favorite question.
Singer: But we need some econ Sanjukta!
Paul: Do we really??
Singer: Econ Uber Law.
Manne: Uniform pricing is important to Uber’s business. Hence, this is an ancillary restraint (if it’s a restraint at all).
Paul: I agree with Geoff 100% on the first part—uniform pricing is important to Uber’s business. (Hal, did you see that?)
Beggs: What seems to be happening in part is that Uber is willing to let the short term be a loss leader for the long term, and I doubt that most drivers are willing to make the same tradeoff, so what is good for Uber is probably not what is good for the drivers, even though the "but we only get a percent of what you get so everyone wants to maximize the pie" sounds good if you don't think about it too much.
Paul: Beyond that, it is impossible to think about Uber’s pricing strategy in abstraction from their investor-facing strategy. And investor decisions do not track operational profits, as both Uber and private equity show in converse ways.
'Resale price maintenance' was illegal per se (though not in practice) in the US- as it is in the UK- till a 2007 Supreme Court decision. When I was young there were still some people who wanted r.p.m back to 'protect the small shopkeeper' but voters hated the small shopkeeper and wanted big supermarkets to stay open on Sunday.
Paul may think voters are 'deplorable' for this preference of theirs, but in a Democratic country, voters can't be ignored utterly- save by Professors.
Beggs: This is true, but Uber doesn't seem to have any trouble attracting capital regardless of their specific decisions.
Paul: I think Uber cares more about selling itself to the (financial) market than anything else. It's not totally obvious what the long-term strategy on operational revenue (or profit) actually is. But does it matter if share values keep going up? Long enough for the people currently making decisions at least?
Singer: Let’s get back to Sanjukta’s paper. She argues that “if we intend to dismantle the monopolistic and oligopolistic market coordination that has proven so pernicious, we will require other forms of coordination to replace them.” She asserts that relaxing enforcement of Section 1 claims against coordination across small firms is necessary to attacking our monopoly problem. How far should we go in legalizing horizontal coordination beyond firm boundaries? Sanjukta, are you really suggesting legalizing all cartels?
Paul: I do think we should liberalize a lot of horizontal coordination that doesn’t take place within firms, including some that might currently be referred to as a “cartel,” along with addressing monopoly, because I think the two are self-reinforcing. For example, failure to address monopoly contributes to differential access to capital among less and more powerful people; investors are interested in growth through increased market share, etc.
Wonderful! White people should be allowed to form cartels to keep out brown people like Paul! Elizabeth Warren can trump Trump by offering the White voter a ticket back to the Fifties! Obviously, 'monopolies that contribute to differential access to capital' is code for 'niggah lovin' kikes'.
Beggs: This conversation makes me think that it's worth having a legal distinction between "1099 worker" and "small business."
Manne: Sure. Uber drivers are small businesses.
Beggs: Except they aren't really, at least not as it pertains to this context, if for no other reason than small business generally have pricing authority.
Manne: I’m not sure why it matters for this 1099/small business distinction if they are price takers.
Beggs: Uber drivers don't have market power in any meaningful way above and beyond that of employees, so it's absurd to give them different collective action rights. My concern about Uber drivers being classified as employees is that they could potentially lose a lot of autonomy.
Paul: To make the determination that coordination should be legal, we need independent criteria—independent of firm status—though I am not totally sure about “market power.” Under the current system, you get coordination rights from antitrust precisely if you already have concentrated power!
Nonsense. You get them by incorporation or forming a Partnership.
Manne: But why can’t a small business work for a larger business? Again, large-scale construction is done this way. Also movie production. There’s a great paper by Mitu Gulati and Bill Klein — a really fascinating discussion of the organizational dynamics of large construction projects.
Singer: Geoff’s solution to most competition problems involves the little guy selling out to the big guy.
Paul: The idea that a small business should not be subordinated in a "work for" way to a large business, under antitrust, is the whole point of Richfield Oil.
This is not true. Had Richfield shown that the outlets which it owned and controlled, but which were formally independent, had to be subordinated for a Health & Safety reason, rather than to exclude competition arising from inter-state commerce, then that subordination would have been permitted.
Manne: We also see these small businesses working for large businesses in franchise too. Why are franchise agreements evil?
Paul: Well, in franchising we have a similar situation where the much more powerful firm (franchisor) is permitted to engage in all kinds of economic coordination--even setting franchisees' prices--while disclaiming firm status for every other purpose, such as labor law and corporate law. Meanwhile, franchisees are entirely denied coordination rights. They can't get together to set consumer prices or negotiate their (oppressive) contracts with franchisors.
They also can't get together to keep out colored people or to use inferior inputs.
Manne: “More powerful” implies something like an involuntary relationship in which the only choice the franchisee has is to be come the franchisor’s bitch. But that isn’t the case. So if the franchisee enters voluntarily into a franchising agreement, is the alleged power disparity really relevant?
Paul: Really the key that I want to communicate is that antitrust itself is creating and allocating these power differentials.
Very true! In exactly the same way, Laws regarding Sexual Assault create Rape victims and allocate the role of rapists in accordance with power differentials. Wake up sheeple! Can't you see that it is the Law which creates neoliberalism and it is neoliberalism which sodomizes us when we are sleeping and then takes all the clean dishes we had scrubbed and put away and makes them dirty again and piles them up in the sink? Also, it wasn't the dog that ate my homework, it was the Law wot did it coz neoliberalism told it to.
You may agree or disagree, and we can have that conversation, but in allocating pricing rights to franchisors over franchisees' prices, it’s making a specific policy choice.
A franchisee can set her own prices and also deep fry dog turds and pass them off as fried chicken. The franchisor can go to court and get an order forbidding the franchisee from trading under its name. This has nothing to do with anti-trust law. It has to do with the law of contract.
It doesn’t have to make that choice. Just like it doesn't have to make the choice that franchisees don't get to coordinate. That choice is also inconsistent with the treatment of "franchising families" under corporate or labor law.
It makes sense to transfer liability to the guy with deep pockets. Obviously, he passes back the cost of indemnity insurance but at least vulnerable people get coverage. The big guys should be happy with this outcome because a new barrier to entry has been created. In the case of fast food franchises- maybe it is a good thing if prices go up. Customers might be better off eating fruit or, if they believe bananas are our brothers and eating fruit is fratricide, chowing down on some leaves or freshly mown grass.
Singer: Good chance to get back to your paper, where you speak of the “firm exemption” to antitrust. Love that phrase, by the way. So long as things happen within the firm, they are outside the scope of antitrust enforcement. It’s like what happens in Vegas, but for firms. An example I like to use is exclusive dealing: An exclusive dealing arrangement between a large input provider and a standalone distributor is subject to antitrust scrutiny, but bring the exclusive distributor in-house and the exposure goes away. Briefly, how did we get here?
Currently, a person who uses her own hand to wipe herself is considered to be behaving perfectly legally even though she has invited bids from hands other than her own. I need hardly say that this may involve racial or gender discrimination. Anyway, that is why I am refusing to wipe myself till the Law is amended and a proper, transparent, mechanism is created for wiping activities to be allocated in a manner that satisfies the requirements of Social Justice.
Paul: Yeah, so we've had two parallel developments: 1) the firm exemption has been broadened, and 2) other coordination rights have been contracted. The legislators who drafted the Sherman Act did not obsess over the firm-market boundary. They cared about whether economic coordination was socially helpful or harmful.
They were not concerned with economic coordination. They were exclusively concerned with collusive or other anti-competitive actions.
Over time antitrust has moved away from the original legislative vision, and has reified the firm as well as an idea of the competitive order that legislators had no concept of or concern with.
If the original legislators were stupid and ignorant- as they must have been with respect to present technology- why bother with them? Is Paul an 'originalist'?
In that competitive order all coordination outside the firm is inherently suspect, and the firm becomes a black box whose internal coordination becomes more invisible to the official way of thinking, even as it becomes more powerful.
If a firm's action is illegal, it is presumed that some internal act of omission or commission occurred. That is why the firm can be punished even if all its owners and employees are angels.
Can we step back for a second? I was going to say something about balancing power but I want to say something maybe we can agree on.
Manne: As if I haven’t agreed with you enough!
Paul: At the end of the day we are having a debate here about differing visions of a social and economic order. But what I want us to get to first, analytically, is admitting that.
This is a debate with a cretin.
Singer: In Geoff's economic order, we all work for the man. Sorry, go on.
Beggs: And should like it, if I’m reading correctly.
Manne: Admitting what, Sanjukta? That we’re debating different visions of a social and economic order? Too abstract for me. Can you unpack that? (And also, let’s do without the inaccurate caricatures of classical liberalism, Hal; you do enough of that on Twitter!).
Paul: Sure. That's the reason I'm so focused on unearthing the firm exemption: because I want to show that antitrust is making basic choices about who gets power in society.
Manne: Ok, but I still need help with what you think we’re agreeing on.
Paul: The current antitrust framework elides that fact, and it does so through neutral sounding talk of firms and cartels. So that is the deeper point. I am actually not a lobbyist for would-be cartels. The fact is that antitrust used to be far more tolerant to economic coordination that happens outside firms,
Very true! That's why WASP businesses could collude to refuse to give equal treatment black people or Jews or women without fear that one of their number would undercut this 'gentleman's agreement' and thus increase his market share . Paul must think that was a swell time to be alive.
and far more scrutinizing of coordination that happened within them. If I have one point, it is that we should come up with independent criteria for whether economic coordination is good or bad,not the formalistic distinction about whether that coordination takes place in a firm or cartel or something else.
Cretins come up with independent criteria for all sorts of things. They should be ignored.
Singer: Shifting gears again. Assuming the FTC could stop sucking up to the platforms (as it did in the 1-800 CONTACTS case) and somehow be motivated to bring a Section 1 claim against Uber for price fixing of passenger fares, what are the chances that such a claim would prevail under current antitrust standards? I’m trying to figure out if this is serious case, Sanjukta, or if instead you are merely pointing out the double standard.
Manne: The chance of success of a Section 1 claim are close to zero. Just saying; not claiming that’s good or bad.
Singer: Why zero, Geoff?
Manne: In the market for rides, in which you hypothesize Uber is price fixing, it isn’t even dominant. But even if it were, it isn’t price fixing.
Paul: I’m pointing out a conflict both at the level of policy and principle, and at the level of positive law. However, I do want to note that I wouldn’t actually advocate bringing such a case, because, as is clear from the paper, I don’t espouse the general principles that it rests on. I do think those general principles are being inconsistently applied.
But only because you are a cretin.
I think that under the positive law there are two possibilities. Either the case against Uber shows there’s a horizontal restraint and the per se rule applies, in which I think the plaintiffs prevail, period.
How do the plaintiffs prevail? Uber goes out of business without ever having repaid its investors. But so does every other company with a market-penetration strategy featuring below average cost prices under adhesion type contracts. Clearly, doing so means you are trying to increase market share which means, at least locally, more market power. Thus, unless you make a healthy profit from day one, your pricing is per se illegal. This would be great news for the big corporations. They need no longer fear 'disruptors'. It would also mean all really smart start ups migrate to China.
Or for some reason they get outside the per se rule—I think this is hard, because the setting of ride prices has nothing to do with the contract about software use that is supposedly the subject of the relationship between Uber and drivers, according to Uber itself, and therefore it can’t be a vertical restraint—and then I think it’s hard for them to argue that they get outside the per se rule but drivers do not.
But Uber is that the drivers are wholly independent. So long as they act independently, they don't fall foul of any per se
rule against collusion. Even if they do, nobody is going to sue them because they don't have deep collective pockets. It is a different matter that an Association of drivers may agree, on pressure from the FTC, to put an end to some obnoxious practice. It is not the case that drivers wake up in the middle of the night screaming 'oh no! The FTC is investigating me! I'll have to talk to my man at Hill & Knowlton and get ready to hand out a few million to buy some Senators.'
The sort of cases that would support that—Appalachian Coals, BMI—also support drivers’ coordination. In fact, Appalachian Coals might support drivers’ coordination but not Uber’s!
Coz your typical Uber driver owns coal mines and pays for private armies. The BMI case had to do with the 'rule of reason' gaining salience over 'per se'. It is wholly contrary to reason to think that drivers can avail of some come countervailing 'coordination right' which they are currently not able to do because they are so law abiding, but also so ignorant, as to believe that the FTC will sue the shit out of them because of a 'per se' action on their part.
Suppose we say that the Law discriminates against gang-rape victims because it forbids them from raping their assailants before they get a chance to rape them and thus disabling their ability to commit rape. It may, technically, be true that a person who rapes a gang would not be gang-raped by them, but it is not reasonable to suppose that such a situation ever actually obtains.
Suppose some drivers collude to charge double what Uber does while sexually harassing their clients. Will Uber be trembling in its boots? No. It is precisely because of bad behavior by 'gypsy cab' drivers that people prefer to use a reputable radio cab or app based ride service.
Manne: This is easy rule of reason territory. Again, look at Apple e-books. In a case like this, per se entails a full rule of reason analysis to decide if per se applies. Under that analysis, the court will ask whether there is any harm and any pro-competitive justifications. How would anyone show harm? There isn’t any that I can see. And even if there were, the pro-competitive justifications are huge.
Paul: Geoff, do you think per se applies to drivers’ coordination?
Manne: Think BMI, NCAA, standard setting organizations, franchises, joint ventures, etc. There are so many arrangements that could be classified as horizontal collusion but that the courts accept.
Paul: Ahhh BMI! Here is my point. BMI justifies drivers’ coordination. There is no way to use it to immunize Uber only.
Beggs: Oh now we're in my wheelhouse do go on...
Manne: I think per se is much more likely to apply to drivers’ coordination, but theoretically they could make a case to get out of it. I think it far less likely though.
Paul: You are either using strong Section 1 precedent for both Uber and drivers, or you are using cases like BMI for both Uber and drivers. You can’t use different legal standards for the two.
Manne: It’s not binary. BMI could justify driver coordination in theory...
Paul: Geoff agrees with me again!
BMI was a big company selling to the like of CBS. Uber drivers are not. BMI was taken to court for per se
violations because big money was involved. They won under 'rule of reason'.
Who is going to take a bunch of drivers to court? Nobody, except the local authority on behalf of tax payers who are sick and tired of bad behavior on the part of cabbies. But that would happen anyway. It has nothing to do with Uber.
Beggs: I do think that that answer is yes.
Manne: … but it needn’t even if it justified Uber “coordination” (even though that’s not necessary because Uber is a single firm).
Paul: Can I please remind everyone that the Seattle preemption lawsuit requires immediate per se treatment and if BMI applies the suit should go away. If we are in BMI territory, considering justifications for driver coordination, we are out of per se land.
Uber wants to stop Seattle's law unionizing Uber drivers. If 'per se' really were the law of the land, Uber could have got the FTC to prosecute. They spent money bringing the case themselves because they were trying to boost the share price for their IPO.
If Washington State backs the law, it will gain 'Federalist' protection.
Manne: As I said earlier, I have some sympathies with the argument that we should permit more contracts than we currently do! Firm or not.
Paul: Federal antitrust preemption requires showing that the per se rule applies to the conduct authorized by the state or local law at issue and that the statute therefore conflicts with federal antitrust law on its face. See, e.g., Rice v. Norman Williams Co.(1982). By definition if we are addressing benefits and harms under BMI, the statute isn’t preempted.
Manne: I disagree. Rice v. Norman Williams also finds preemption when a statute “places irresistible pressure on a private party to violate the antitrust laws.” The fact that there might be a theoretical exception to what is typically a per se violation can’t be enough to immunize a statute, or else no anticompetitive statute would ever be preempted by the Sherman Act. Here, the theoretical, BMI–like benefit is only theoretical, because the municipal statute (unlike the state statute) clearly contemplates collective bargaining for the purpose of lowering prices, and imposes a structure that indeed makes a violation irresistible because it requires all drivers to be bound by the collusive agreement once only a majority assents to unionization.
In BMI & Rice v Norman Williams, big sums of money were involved and judgments made quite elastic use of 'rule of reason' arguments supplied by smart attorneys. Seattle's unionization law could get 'State exemption' if adopted by the Legislature in Olympia as part of a wider push-back against the Supreme Court's Janus decision to allow government employees to opt out of paying union dues (because the Public Sector union has a political aspect). 'Right to Work' campaigners will fight this in the Courts but voters will not be cowed. The Bench will have to tread carefully if there is not to be a backlash against their rightward drift.
Paul: The BMI-like benefit is not theoretical. In fact you yourself are committed to the position that it is not theoretical, to get Uber out of per se territory. Once a majority of those voting vote to give themselves coordination rights to (partially) balance Uber’s, indeed the almost-certain improvement in pay, working conditions, and quality of life will flow to all drivers.
While customers will pay more.
Manne: I don't rely on BMI to get Uber out of per se. I rely on there not being any agreement.
Because you can't collude with yourself.
And also, even if BMI applies in one place it just doesn't mean, as you suggest, that it must apply in another. BMI requires a valid pro-competitive benefit to remove conduct from per se land. Either its existence means nothing is ever facially per se, and thus makes the preemption case law irrelevant, or (as I see it) it means coordination to benefit consumers by uniform pricing, etc. matters, but coordination to raise input prices does not.
Paul: I don’t agree there is no agreement in the Uber case but not in the driver case, and neither did Judge Rakoff (and I think the ancillary restraint argument would also eviscerate the per se rule).
Rakoff's objection was to electronic EULAs which people sign without reading and which are very one-sided. In this case, a guy protesting about Uber's 'surge pricing'- which he held to be collusion between Uber and Uber drivers- was forced by a higher court to go to arbitration as required by his contract. He wanted a trial by jury and Rakoff felt everybody should have this right even if they clicked on a button on their smartphone and thus became contractually obligated to sacrifice their first born child to Hecate.
Also, BMI applies in both places because both theories essentially involve coordination among drivers as to ride services. I’ll leave it there for now for Hal’s sake.
Incidentally, the drivers would have been equally guilty in the Rakoff case. The reason the drivers weren't being sued is because they had no money. This is the only relevant asymmetry here. Some people are smart and have lots of money. Anti Trust Law targets them. Others are dumb as shit and have no cash. The FTC ignores them. If a Local Authority passes a law to protect the dumb as shit, then Anti Trust Law becomes relevant. Not otherwise.
Singer: Geoff thinks a showing of harm is essential to any price-fixing case against Uber. So let's go there and get the econs involved. Continuing with this hypothetical fare-fixing case against Uber, how would one go about showing that Uber passengers paid higher fares as a result of the alleged price fixing? How would fares be determined in the absence of Uber’s alleged coordination of prices to be charged by its drivers? Via an auction by Uber drivers? Is this even feasible?
Manne: The key is that with non-standard contracts, some hypothetical “market,” pre-conduct price isn’t the proper benchmark. Especially if your benchmark “market” price is one set by regulators! There are tons of product market failures (to quote Williamson). Referring back to the price (if there were one) in a crummy, heavily regulated “market” isn’t sensible.
Paul: Why are we all assuming we should show consumer harm only? Also, there is absolutely no basis for a firm to treat all service providers as independent contractors and then set the price of that commodity.
Manne: No basis in what?
Paul: Principle? Logic?
Manne: In law there is; in economics there is. Maybe not in what you think the law should be. But that wasn’t the question (although that is what we were discussing before when Hal so rudely moved us on).
Paul: If a firm disclaims the employment relationship, the entire justification that has been proffered for the differential treatment of firms and cartels goes away.
Manne: Not necessarily. Why should the distinction between worker/employee for employment law purposes map onto anticompetitive/competitive for antitrust law purposes?
Paul: The basis for the firm exemption is, ultimately, precisely the employment relationship. The idea, going back ultimately to Coase, is that what happens inside the firm is organized by command rather than contract and that organization minimizes costs. This is the tradition Bork picked up on, in arguing for loosening up on vertical restraints and mergers while cartels remained per se illegal. If you convert the firm into a collection of contracts, as the independent contractor-based firm is, you lose the ultimate justification for the firm exemption.
There was no 'firm exemption' nor did anyone provide any justification for it. Why? For the same reason that there is no 'person exemption' such that you aren't allowed to wipe yourself till you have put out the job to tender and determined that you can do the job more cheaply and efficiently than anyone else.
As a matter of fact, Anti Trust Law did break up some big firms into smaller ones which contracted with each other. If 'exclusionary conduct' continued, it could be prosecuted.
Singer: In the last few minutes, I'd like to hear what policy levers you would pull if you were in charge to rectify this great injustice. Assuming antitrust law is helplessly constrained by the Chicago School teachings and the consumer-welfare standard, what are some legislative fixes that would restore coordination rights to workers or to smaller firms?
Beggs: Hot take policy idea: The party that doesn't have direct pricing authority should get to collectively bargain.
Paul:I like that!
Customers don't. Voters don't. The thing would quickly lead to the collapse of the economy. Consider what would happen if homeowners with mortgages formed a Union to bargain with mortgage holders. They may want to cut repayments to a peppercorn level. If the mortgage holders try to repossess properties, their bailiffs are beaten and chased away. Their own commercial premises and perhaps even their own homes are picketed. The police and the courts would be powerless to act against the Mortgagees Union because one third of the population would have a strong motivation to act militantly. But, what would be the result? Banks and other financial institutions would collapse. Most businesses would go bust. Grocery shops would be empty. Electricity supply would cease. Society would collapse.
Manne: Everyone should get to collectively bargain! Unions are legal and—another shocker from me—often efficient in the collective bargaining sense. Go back to a market power screen (i.e., what the law used to be). Remove the part that says market power means no coordination. But without market power, why would it ever be presumptively inefficient to coordinate? (The reason it might be sensible as a matter of law is administrative efficiency. Which I would say is the reason why the law is like it or not some grand Marxian conspiracy.
If this be reason, what is madness?
Paul: I’m increasingly convinced this is key to the advantages the firm exemption gives to those who already have power (power in the sense of wealth, access to capital).
It is also key to the 'person exemption' which permits you to wipe yourself and to object to someone else barging into your stall and doing it for you.
However, I would like to hear a definition of "market power.” If it doesn’t include factors like property rights or access to capital, it is not sufficiently broad, and we need a broader concept of economic power to replace it for purposes of allocating coordination rights.
We don't allocate coordination rights for the simple reason that they don't exist. Hearing definitions can't change that brute fact. Bosses and Legislators and Policemen have 'command rights'. People can coordinate their actions as they please provided they don't violate a 'command right' because that would entail punishment or deprivation of some sort.
Manne: Wow—agreement all around. If no market power, then collective bargaining is ok. Right? We all agree?
If a thing can have no beneficial effect for those doing it, it is not okay. It is foolish. These guys have just agreed they are all cretins.
Beggs: 100%. Walras would be so mad at us, but yeah.
Singer: Sanjukta, any final policy preference here?
Paul: Broaden access to coordination rights, including looser horizontal coordination beyond firm boundaries that does not involve managerial hierarchies or concentrated ownership, with appropriate public oversight. [This includes reversing the direction of precedents like Sealy and Topco.]
So, if a bunch of rich guys carve up a market and then set up a Company which 'licenses' them to operate in an exclusive territory, Paul thinks that would be a swell thing. We should pretend they are all actually malnourished peasants or underprivileged laborers who need to be protected from 'Neoliberalism'. By contrast, their customers are all very wealthy Aristocrats. Thus we must protect the livelihood of the Sealy mattress distributor because young people buying their first mattress are all super rich. Similarly, we must protect the super-market owner's profit margin because the only people who shop there are Aristocrats living in palaces.
Is Paul utterly mad? Does she really think that ordinary people have the deep pockets and the commercial nous to form producer collectives which can take on Corporate behemoths?
Anti Trust law can lower prices for consumers- but that's all it can do. It can't wave a magic wand and turn poor people into commercial geniuses with billion dollar Trust funds.
Also, more stringent application of antitrust to maintain decentralized markets would help to maintain a more balanced allocation of coordination rights.
Sure, you can stop enterprises from growing by exploiting economies of scale and scope. Smart people can always relocate to a more capitalist type of country. But what would be the outcome? Something worse than Venezuela.
This is true in itself of course, but it would also blunt some of the investor-facing dynamics within firms like Uber that we discussed earlier.
Those dynamics were beneficial for consumers who were able to get rides more cheaply and safely than ever before. There's many a girl who escaped rape thanks to Uber's 'investor-facing dynamics' which led to lower prices financed by wealthy investors.
Those dynamics not only influence pricing behavior but also exacerbate imbalances with alternative forms of organization like producer cooperatives.
Because 'producer cooperatives' work so well that Venezuela is now an Earthly Paradise.