Under Uber’s model, prices are not fixed by drivers, but through an algorithm managed by Uber. Competition authorities may need to investigate whether Uber’s price-fixing algorithm is manoeuvred to reduce competition among drivers. If Uber’s algorithm merely changes prices in response to driver demand and supply, then no collusion exists and an occurrence of drivers charging the same price should be regarded as coincidental. However, Uber’s actions suggest that it not only manipulates prices but also unilaterally offers price discounts and sets minimum prices for routes. For example, in 2017, Uber unilaterally slashed fares in Lagos by 40 percent and fixed minimum fares for certain locations: “Magodo to Gbagada [old price] From N1,100 [new price] From N600”. If the assumption that Uber fixes prices between its drivers is correct (assuming drivers are independent contractors), then section 107 FCCPA is breached.
Section 60 Federal Competition and Consumer Protection Act (“FCCPA”) provides some leeway for Uber should its price-fixing system become the subject of competition scrutiny. By that provision, price-fixing arrangements may be valid if the undertakings satisfy the Federal Competition and Consumer Protection Commission (“Commission”) that the arrangement: benefits consumers, improves production or distribution of services or the promotion of technical or economic progress; imposes only restrictions that are indispensable to achieving the objectives in (i) above, and does not afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the services concerned.
While Uber may successfully show that its business model has brought economic and pro-consumer gains (reduced taxi fares, increased options for consumers), it is unlikely to satisfy the third condition, since the system completely eliminates price competition among drivers. However, a decision of the Luxembourg competition authority suggests otherwise. The decision arose from an inquiry into Webtaxi, a company which provided a platform that linked taxi companies with consumers and fixed fares algorithmically.
Notwithstanding a finding that the arrangement was restrictive, the Luxembourg authority granted an exemption on the basis of Article 4 of the Luxembourg competition law, the equivalent of section 60 FCCPA. The authority concluded that there were pro-consumer and efficiency gains (lower prices set by the algorithm, decrease in empty taxis and waiting times). The authority also resolved that the price-fixing was indispensable to achieving the pro-consumer benefits of the arrangement, as these benefits could not be attained by any viable alternative. Certainly, Uber can advance the arguments in this decision in seeking exemption under section 60 FCCPA.
Regulatory disparity
Uber has also faced resistance from traditional taxis which have alleged regulatory disparity between Uber and taxis. Here, the complaint against Uber yields at two levels – price competition and market access. The first level is price competition – that Uber does not observe taxi regulations on pricing, and therefore traditional taxis cannot compete with Uber which can make “more competitive prices” according to market needs. In Nigeria, there are hardly any price-fixing regulations for traditional taxis and such taxis are free to compete with Uber by offering lower prices. However, a few instances still exist where taxis have to comply with rates set by regulatory associations.
The second level concerns access to the market. Under extant regulations, traditional taxis are licensed as commercial cars, pay regulation fees and are painted in certain colours. These taxis, identified by their colour or other marks, are prohibited from entering certain locations, residential estates or hotels. A good chunk of the market is therefore lost due to compliance with taxi regulations or residential prohibitions. Uber does not have these limitations and is, therefore, able to provide services to a wider range of customers, enjoying an ostensibly unfair competitive edge over traditional taxis. In March 2019, as a reaction to the divergent regulatory practice at the Abuja airport (taxis paid fees to operate at the airport while Uber drivers did not), taxi drivers began harassing and chasing away Uber drivers from the airport. It is doubtful whether competition law is the appropriate tool to remedy the ‘unfair’ advantages which Uber derives from the asymmetrical regulatory regime. Indeed, the Commission lacks the authority to bring Uber within the ambit of the applicable taxi regulations; such authority seems to reside elsewhere.
As the Commission settles into its regulatory function, one expects increased scrutiny of practices in the transportation sector. The relevant authorities may seek to introduce regulations that ensure a balanced platform for competition between Uber and traditional taxis. A regime that would require Uber drivers to comply with certain taxi regulations, such as painting cars a particular colour, may work against Uber’s business model and hamper innovation. A better framework is one that removes obstacles hindering traditional taxis from competing with Uber while encouraging them to evolve to adequately compete in the ride-hailing economy.
Prince Nwankwo holds law degrees from Harvard Law School and the University of Nigeria. Currently, he provides legal and technical support to the ECOWAS Regional Competition Authority as a Harvard Orrick Fellow. The author can be reached by email at [email protected].
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