Ben Edelman, an associate professor at HBS who earned both his Ph.D. in Economics and his J.D. at the Crimson institution, has dedicated his research to investigating the “public and private forces shaping Internet architecture and business opportunities, with particular focus on online advertising, competition, regulation, and consumer protection.” Most recently, Edelman conducted an analysis of Uber’s API terms and whether they prevent fair competition that would benefit consumers.
In Edelman’s research titled “How Uber Uses API Restrictions to Block Price Comparison and Impede Competition”, the professor points out that drivers and passengers alike use multiple ride-hailing apps – not just Uber. However, Edelman argues that because Uber doesn’t allow developers to work with competitors, it’s not only forcing them to exclusively distribute its services, but it’s also undermining competition by hindering transparency into factors like price and transportation time that would benefit both consumers and drivers.
Edelman sets the scene for his analysis:
Uber encourages app developers and the general public to think this API restriction is Uber’s right—that Uber’s data is for Uber to use or restrict as it chooses. But the restriction is calculated and intended to block competition—a purpose considered improper under competition laws, and a special stretch for Uber in light of the company’s positions on related issues of competition and regulation.
You may not use the Uber API, Uber API Materials, or Uber Data in any manner that is competitive to Uber or the Uber Services, including, without limitation, in connection with any application, website or other product or service that also includes, features, endorses, or otherwise supports in any way a third party that provides services competitive to Uber’s products and services, as determined in our sole discretion.
Why It’s Fishy
Edelman first shares that one could view Uber’s API terms from a contractual stance. Uber can control its information, whether it be about pricing or arrival times for its drivers, and by agreeing to its API terms, developers enter into a contract with the company. That said, the HBS professor argues it’s not necessarily a cut-and-dry question of contract. According to Edelman, it’s important to examine the purpose behind Uber’s restrictions:
Uber doesn’t ban aggregators and price comparison tools because it believes these tools harm passengers or drivers. On the contrary, Uber bans aggregators and price comparison tools exactly because they help passengers and drivers but, potentially, harm Uber by directing transactions onto other platforms. Uber’s purpose is transparently to impede competition —to make it more difficult for competing services to provide relevant and timely offers to appropriate customers.
It’s not hard to figure out why Uber would want to cut out competition. If other ride-hailing services, like Lyft or Boston’s Fasten, start to gain serious momentum, Edelman maintains it would pressure Uber to cut their rates, improve their quality and, well, compete or else it could have to dip into its profits. Up until this point, requiring developers to work exclusively with it has helped Uber maintain its position on top and allows them to mark up prices. Taking that into account, he concludes it would be difficult for Uber to form an argument that its API restrictions are for any purpose other than blocking competition. Edelman writes:
Price comparison requests are not burdensome to Uber’s servers; Uber nowhere limits the quantity of requests for other purposes… Nor is there any genuine contention that price comparison services are, say, confusing to users; the difference between an Uber and a Lyft ride can be easily communicated via an appropriate logo, on-screen messaging, and the like. But in any event Uber hasn’t attempted these arguments; as Uber itself admits in the rules quoted above, the API restrictions are designed solely to advance the company’s business interests by blocking competition.
The Legal Part
“Uber is poorly positioned to simultaneously oppose competition from other app-based services.”
Furthermore, he highlights the Department of Justice’s Single-Firm Conduct Under Section 2 of the Sherman Act, which lays out doctrine determining exclusionary conduct cases. It spells out several criteria by which the DOJ can determine whether a company is engaging in suitably aggressive competition or whether it’s trying to unlawfully block competition. Edelman writes that Uber’s API restrictions try to exclude competitors that are equally or more efficient than its company. Allowing developers to aggregate data for comparisons with other services wouldn’t burden Uber if it were required to do so, as the API infrastructure is already in place. Lastly, Uber temporarily gives up profits that could come in from developers funneling referrals its way in order to maintain a permanent blockade of competition. All of these factors, according to Edelman, suggest Uber might be inappropriately excluding competition.
What to Look Forward to
In Edelman’s eyes, Uber could face a challenging battle if brought to suit for its API restrictions, especially since it has put itself on a fair competition pedestal when going up against taxi unions. The professor wrote, “Cloaking itself in the aura of competition as it seeks to avoid regulations that apply to other commercial vehicles, Uber is poorly positioned to simultaneously oppose competition from other app-based services.”
After being shut off from the APIs, Urbanhail has been exploring the legality of Uber’s terms, but it hasn’t decided whether it will take legal action. Amber James, one of Urbanhail’s co-founders, told us in an email, “We’re investigating both legal implications and technical solutions to [U]ber’s latest move, but it’s too premature to say what our exact next steps will be.”