The antitrust case against the gig economy

A conversation with Marshall Steinbaum

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This week I spoke with Marshall Steinbaum, assistant professor of economics at the University of Utah and a keen observer of the gig economy. Steinbaum recently wrote a piece detailing the antitrust case against gig economy labor platforms. In it, he argues that gig platforms like Uber use anticompetitive tactics to limit competition, increase profits, and keep gig workers independent in name only. We chatted about his piece, why antitrust could be the next front in the legal war against the gig economy, and what sort of legal remedies could make gig workers truly independent.

This interview has been condensed and edited. All links were added for clarity.

Oversharing: You wrote this great article about the antitrust case against the gig economy. Could tell me a bit more about how you got interested in that?

Steinbaum: Sure, I'm a labor economist by training. And so there's naturally been a lot of attention in labor economics to the gig economy and the erosion of traditional labor regulations that apply to employees. The whole premise being that gig workers are self-employed and thus don't benefit from the protections enshrined in labor law.

In 2016, I got wind of a lawsuit that was brought by a labor advocate against Travis Kalanick, initially alleging an anticompetitive conspiracy between Travis Kalanick, then the CEO of Uber, and the drivers. Basically it was a consumer saying I've been harmed by this conspiracy, where the conspiracy is premised on the idea that the drivers and Travis Kalanick are separate entities that are horizontally fixing prices among themselves.

If I'm remembering right, that complaint hinged on the fact that Travis had also driven for Uber?

I think hinged may be a little too strong of a word. But yes, it certainly used that fact to say that these are individual people who have to collectively join together to charge high prices, which in those days were surges. So the claim was basically that surge pricing was cartel behavior on the part of all the Uber drivers, including Kalanick, to charge an excess of taxi fares during surge periods.

That case was interesting because it came at a time when most of the litigation against the Ubers of the world was still very much focused on trying to sue over misclassification of workers.

Yes, I mean, the whole idea of the case was okay, if they're independent contractors, then there's antitrust liability. Even then, those [employment misclassification] cases were not going well and they've continued to go poorly. In California, there was a court ruling that was on the side of employment classification that was enshrined in state law, and then that state law was overturned by Prop 22. And then Prop 22 has been found unconstitutional. So we are very deep in the legal weeds on the employment classification question, but it's not really up for debate in most jurisdictions. There's only a few jurisdictions where that's still even possible and the companies are trying very hard to remove that last shred of liability.

The point of my piece is that if the companies win the way they want to on that question, then they open up the can of worms of antitrust liability. Because if the drivers are not employees, then they're independent, and antitrust restricts the types of restraints that dominant firms can place on subordinate less powerful ones in the interest of preserving competition.

I want to take a step back. Can you give a layman's definition of ‘restraint,’ which is a word that comes up a lot in your piece?

Restraint is any contractual provision that prevents the counterparty from doing something. So, for example, if Uber sets the prices that individual drivers charge to customers, that is a vertical price restraint. It is a price restraint because it is restricting the autonomy by which the drivers might set prices—that is, they have to set the price that Uber says to set. And then it's vertical because in the platform economics conception of what these companies do, the drivers are upstream to the platform, the consumers are downstream, and platform sits between them. This was a legal category of two-sided platform that was created by the federal case Ohio v. American Express.

Can also define for people the difference between vertical and horizontal in economic terms?

Horizontal would be any agreement, or in this case any restraint, that is agreed to by economic agents at the same level of the supply chain. So for example, if Uber and Lyft agreed among themselves that drivers are only allowed a single home—if you're a Lyft driver, you can only drive for Lyft, and if you're an Uber driver, you can only drive for Uber—and each of the platforms agrees that if they find out that one of their drivers is driving for the other one, they'll cut them off of that platform. That would be a horizontal restraint. In fact, it would be basically a no-poaching agreement between two rival platforms.

That's not what they've done. That would incur much more antitrust liability; it would be easier to prove plaintiffs’ case if they engaged in that behavior. The contention in my piece is that the vertical restraints—so Uber and Lyft separately imposing on their drivers more or less economically identical types of restraints—effectuates the same outcome as a horizontal agreement between Uber and Lyft to only allow drivers to single-home. That's what the economic effect of those vertical restraints is.

You make the interesting point in the piece that Uber and other platforms like this really try to have it both ways. They insist their drivers are independent, but they also want the advantages of being able to set prices, determine routes, collect data, and so on.

That contradiction is at the core of their business models.

You also tackle a lot of the arguments these companies make about why their work is independent and show why those arguments are potentially fallacies. For instance, companies like to say that if you're in the gig economy, you're not tied to any single platform. If you don't want to drive for Uber, you can hop over to Lyft. But your piece starts to show why in reality that's often not true, especially because of incentive pay schemes.

Those two things are very closely connected. The incentive pay, just to explicate that point, is that drivers are incentivized to single-home on one platform. They don't make enough on a per-trip basis to hop back and forth from one platform to another, in response to the best pay offers. The way that you have to make money, or the only way it's really possible to make money on the platform, is by making use of this incentive pay. So things like advanced bonuses that say if you agree to drive X number of rides for this platform or accept X number of rides for this platform, then you will get a lump-sum bonus of some amount. Once you've agreed to a bonus system like that, you basically can't multi-home because in order to hit the bonus you have to accept ride offers from only one platform. So this is a way of guaranteeing a labor supply in advance without having to compete against your rival platform for gig workers' time.

I think that's one crucial way in which this sort of gig work promise of flexibility is a lie. My take on this is that the only thing they have left in the range of flexibility, given all the vertical restraints they impose, is just this idea that you choose your own work hours, which I think is valuable to a lot of workers.

Right. Do you think this notion of flexibility is harder to sell post-pandemic, as we’ve seen a shift toward flexibility in companies letting people work remotely, or being more lenient around hours?

I think that the idea that traditional employment can be flexible, so there's no reason why employment status means less flexibility—that's true in principle. In practice, that is an emblem of higher status employment, in general. So among misclassified employees, having that kind of time flexibility is an aspirational position. It's certainly very convenient to people who have it. A lot of people don't have it. So when the platforms are out there saying, well, we are not at the high end of the labor market, but at least we offer that, that's very attractive to people for very good reason.

Who do you see as the current competitor for the gig labor supply? At one point, Uber talked about it internally as being McDonald's. Do you think that's still the right comparison?

Yeah, I do. Especially when you think about the possibility of immigrant workers being heavily represented in the gig workforce. I think this is why in some ways the push for employment classification has not been that much of a success, because that probably is how drivers see things. And when they compare their status and working conditions to Walmart or McDonald's, they're like, well, you're saying that would be better for me, but that doesn't look better. The pay is the same and on the gig work platforms at least I can choose my own hours. And I think that's compelling. So I think you have to sort of attack the idea that they really are independent. And that's a better way forward as an advocacy position.

It seems to me that it's unlikely at this point that gig workers will be deemed employees in the United States.

I think the only way it would ever happen is if this case is brought and won, frankly.

What would some examples of antitrust remedies be in the gig economy?

It could either be drivers get to set their own prices for rides, or published, agreed upon fare cards. That aspect is contained in the Washington settlement, but the fares are too low and they're not employees. That's contained in the New York City regulations. If it was just, here's what the per-trip fee is and then the kind of autonomy that California drivers had where you could up charge or discount on that rate, I think that that would be a sufficiently strong remedy. Also banning the use of nonlinear pay schemes [based on bonuses and incentives].

The other piece of the remedy would be drivers would have to see fare and destination data in advance. That would radically increase driver labor supply elasticity. So drivers would be able to tell much more acutely whether they should accept or reject a given ride offer, and then in order to get drivers to accept previously rejected job offers they would have to increase the price that they're paying.

I do think there's value in having a system where drivers can't discriminate against riders based on their end destination.

So there's good reason why taxi regulations have neutrality requirements, that is, in principle a taxi driver is required to pick up anybody on the street who hails them. Because we know that discrimination is rife in taxi markets. The reason why discrimination is rife in taxi markets is because drivers don't get paid for deadhead time. So residential segregation is a thing in the U.S. There's going to be a discriminatory cast to anything that looks like a taxi market no matter how you structure it. The question is, how do you tamp down the incentive to discriminate as far as possible? The way you do it in taxis is by having the metered fare. So even if you have to drive to a neighborhood where you're not going to get a ride back, you'll get paid enough on the ride there.

My view is that the way rideshare works now is even more discriminatory. Because it doesn't guarantee you the fare, the incentive to discriminate is higher on the part of drivers, they're just worse at it because they can't see in advance. If that information is not available to drivers and they're not guaranteed a fare that makes it worth their while to pick people up, they're going to want to discriminate. So they may screw up and not succeed in discriminating, but they're going to really, really want to discriminate. What I'm saying is that remedies to this case would radically reduce the incentive to discriminate because they would be getting paid enough to justify taking a fare even if it's going to lead to a neighborhood that doesn't give them a fare on the way back.

If sufficiently strong remedies like the ones you've outlined were mandated by a court, do you think the companies would rather just employ their workers and maintain control of their operations?

I'll say in my own words that there's a sufficiently strong likelihood of that happening that it's worth doing. This is why I think there's an interest in, say, unions pushing for this case to be brought, even if the remedies don't directly lead to employment status and therefore to NLRA unionization. In other jurisdictions where there's been stronger legal regimes requiring employment status, the companies have accommodated themselves to it. Obviously they don't like it, but they can survive.

What do you see as the realistic timeline for these antitrust questions?

I think there could be a case brought at any point, the evidentiary record is strong enough. I think obviously [the companies] would try to quash it and get it dismissed. If they don't get it dismissed, I think they would try to settle it. If it actually proceeds to trial, it will take a few years at best to litigate this because it will be a fact-intensive trial with experts and so on.

The idea is to open another front so to speak in the larger legal war. That is, the way the platforms will defend themselves qua antitrust is to say us exercising control over the drivers is economically efficient. That is the way that every antitrust defendant has won their vertical restraint cases since 1977-78. And that puts into the shade their claims in the employment classification cases that they don't exercise control, that this is independent work, that this is flexible. So I think that the longer this drags on, if it doesn't get dismissed out of hand, the more difficult the public relations war is on the part of the platforms. Because they're going to be on the one hand saying, we have control and that's efficient, and on the other hand, we don't have control, the job is very flexible.