GrubHub, Uber, Postmates Sued For Antitrust Violations, Supracompetitive Prices

On Monday in the Southern District of New York, GrubHub, Uber and Postmates were sued for antitrust violations regarding their allegedly supracompetitive pricing. Plaintiffs Philip Eliades, Jonathan Swaby, John Boisi, and Nathan Obey accused the defendants for violating the Sherman Act, claiming that the defendants have caused them to pay higher prices for goods from restaurants regardless of ordering from the apps or directly from a restaurant.

The plaintiffs stated that the defendants are “exploiting, without procompetitive justification, their dominant position in the fast-growing market for delivery and takeout through internet-based platforms that aggregate the offerings of multiple restaurants.” Further, they said “[g]iven the convenience these platforms offer, and because most restaurants face low profit margins and the subsequent need for volume to cover their costs, the increasing popularity of these platforms has in effect required vast numbers of restaurants to use them.”

The plaintiffs alleged that the defendants require restaurants that use their platforms “to pay unreasonable commissions each time a consumer orders from that restaurant through Defendants’ platforms.” The plaintiffs stated that without restrictions, restaurants would charge customers different prices for orders paid through these services than those orders placed directly with the restaurant. However, “[i]nsulating their platforms… each Defendant contractually prevents the restaurants from offering lower prices for sales outside its platform.”

Additionally, “GrubHub and Uber apply these restrictions most broadly by preventing restaurants from charging lower prices for orders through similar platforms, such as DoorDash.” This is because if a restaurant were to lower their prices for orders made directly through the restaurant, this would allegedly “reduce the restaurants’ sales on the platform and reduce Defendant’s profits.” The plaintiffs alleged that this anticompetitive conduct prevents restaurants and other similar services from competing with defendants, while forcing consumers to pay supracompetitive prices.

The plaintiff explained that the market for these delivery services is dominated by DoorDash, Uber, GrubHub and Postmates, with the market share percentage varying regionally. The plaintiffs claimed that defendants “typically charge a 30% Restaurant Commission Rate to restaurants that do not provide their own delivery, and a lower Restaurant Commission Rate for restaurants that do provide their own delivery and for takeout orders.” A platform may also charge a 5 to 10 percent consumer commission rate and a 5 percent consumer delivery fee. Additionally, the plaintiffs claim that the defendants “have leveraged their position in the relevant markets to force restaurants to enter into agreements that contain most-favored nation provisions (‘MFNs’), which “prohibit a supplier that sells through that platform from charging lower prices when that supplier sells through other channels.” Thus, restaurants must charge consumers the same price even if they sell directly to consumers and would have offered a lower price if it was not for this agreement. The plaintiffs argued the MFNs are anticompetitive and prevent restaurants from charging different prices and competing with the platforms or from other platforms competing with defendants.

Additionally, these platforms compete with each other for consumer orders, thus competing for both consumers and restaurants. For example, “Restaurant Platforms exhibit indirect network effects, in that the value that they offer to one side of the platform is a function of the extent of the use of the other side of the platform. A Restaurant Platform that more consumers use is more valuable to restaurants, because the platform connects those restaurants with more consumers. Conversely, a Restaurant Platform that more restaurants use is more valuable to consumers, because that platform connects those consumers to more restaurants.” Thus, the more restaurants a platform has, the more consumers it can attract and the more consumers it has the more restaurants it can attract. This cycle could be a potential barrier for smaller platforms or new platforms. Additionally, the platforms can compete with each other by offering restaurants lower rates. This has led to competition in both the takeout and delivery market as well as the sit-down market. Defendants have their high market shares through their network of restaurants, supracompetitive pricing their MFNs, and their ability to control prices. Over time, the platforms have allegedly continued to increase the rates that they charge restaurants, while the percentage of orders being placed through the platforms have also increased.

As a result of the defendants’ conduct, the plaintiffs assert that they and the class of been forced to pay supracompetitive prices in violation of antitrust laws. In sum, the plaintiffs have accused the defendants of violating the Sherman Act and state antitrust laws for the restaurant platform market, takeout, delivery, and sit-down market, as well as for restraint of trade, monopolization, and attempted monopolization.

The plaintiffs are represented by Roche Cyrulnik Freedman LLP.

A similar suit was filed in April against food delivery platforms.