Food Delivery Apps Accused of Monopolization, Price Fixing

Plaintiffs Mariam Davitashvili, Adam Bensimon, and Mia Sapienza have filed a class action complaint against delivery app providers Grubhub, Inc. (also doing business as Seamless), DoorDash Inc., Postmates Inc., and Uber Technologies, Inc. and its subsidiary Uber Eats. The plaintiffs, who are from multiple cities and used the apps to receive meals from restaurants, allege that these companies have monopolized the marketplace for food delivery in various geographic areas.

The apps provide customers with a list of available restaurants in their area for customers to pick food items from. They argue that the defendants’ “obtained their monopoly power over both meal delivery consumers and restaurants in the relevant Geographic Submarkets by being first to market Online Meal Ordering Platforms in the various submarkets.” Due to this market control and monopoly power in various markets, “consumers and restaurants have little choice but to do business with them. For example, in New York City Geographic Submarket, Grubhub has a whopping 66% market share of the Meal Delivery Market.” The companies’ market share power is “reflected by their fees, which range from 13.5 – 40% of revenues, even though the average restaurant’s profits range from 3% – 9% of revenues.” As a result, of their large market share, restaurants are forced to use these platforms to compete.

The defendants allegedly exert their power through pricing and restrictions. For example, Defendants’ contracts with restaurants “include clauses require uniform prices for restaurants’ menu items throughout all purchase platforms (the ‘No Price Competition Clause’ or ‘NPCC’). The NPCCs prevent restaurants from charging different prices to meal delivery customers than they charge to dine-in customers for the same menu items.”

The plaintiffs claim that the “NPCCs target and harm not only restaurants, but also two distinct classes of consumers: (1) consumers who purchase directly from restaurants in the Meal Delivery Market; and (2) consumers who buy their meals in the separate and distinct restaurant Dine-In Market. Both restaurants and consumers would benefit absent Defendants’ unlawful restraints.” As a result, the plaintiffs state that “Defendants offer restaurants a devil’s choice: in exchange for permission to participate in Defendants’ Meal Delivery monopolies, restaurants must charge supra-competitive prices to consumers who do not buy their meals through the Delivery Apps, ultimately driving those consumers to Defendants’ platforms.” The plaintiffs state that this competitive pricing is designed to protect the Delivery Apps; they do not have consumers’ nor restaurants’ best interest in mind.

The plaintiffs argue that dine-in or take-out should be cheaper than delivery options as the consumer is directly interacting with the restaurant without the third-party Delivery App’s involvement, and are thus more profitable for restaurants. Similarly, they argue consumers who use these apps should have more expensive meals to cover the defendants’ fees.

Further, the plaintiffs claim that if dine-in consumers received lower prices, it would incentivize more people to dine-in. Because of the restrictions placed on restaurants by these Delivery Apps and the apps’ power, restaurants are beholden to delivery app pricing, which has decreased restaurant profit margins. Customer options are limited by requiring restaurants to charge the same price for dine-in and delivery meals. Meanwhile, delivery apps have grown significantly. In March 2020, industry-wide year-over-year February sales increased by 28 percent and DoorDash grew by 85 percent.

The plaintiffs explain that most geographic submarkets are dominated by one or two of the apps. Additionally, the more of a market share each app has the more consumers and restaurants they can attract. Further, the restaurants are “horizontal competitors with Defendants for the food delivery business.”

Restaurants can have their own in-house order and delivery service at a fraction of the cost as using Defendants, or use other services that offer cheaper rates than the defendant apps. However, according to the plaintiffs, defendants have also monopolized the delivery worker market, forcing restaurants to use these platforms.

Additionally, in light of the coronavirus pandemic, more and more restaurants are depending on the defendants’ apps and services to deliver meals and stay afloat. However, because of the pressure, the defendant apps put on already tight margins, this could prove to hurt restaurants.

The plaintiffs specifically allege violations of Sherman Act Sections 1 and 2. The apps are accused of monopolization, conspiracy to monopolize, as well as price fixing and restraint of trade. The plaintiffs seek treble damages.

The complaint is filed in the New York Southern District Court. The plaintiffs are represented by Frank LLP.