US food delivery companies hit with anti-trust law suit

Locked down or not, customers increasingly rely on deliveries from local restaurants. What if delivery companies imposed "no price competition clauses" on restaurants as a requirement for participating in delivery apps? Essentially, restaurants would agree to not to charge dine- in customers lower prices than those charged to delivery companies (before the delivery markup), with a view to driving customers to the aggregator's platform.

Should these types of agreements be viewed as price fixing? This issue is set to be tested in the US, following a proposed class action complaint recently filed before a New York City federal court. The complaint has Uber, GrubHub, DoorDash and Postmates in its sights. It covers food delivery services in at least 12 US cities including NYC, Houston, San Francisco, Washington DC, Atlanta and Chicago. The "no price competition clause" requires restaurants to charge dine-in customers the same price as those ordering delivery, before adding between 13.5 and 40% in fees. Without these clauses in the delivery contracts, the suit claims, restaurants would be free to offer dine-in customers lower prices. The claim is that the real goal is to fix the restaurant's prices used in the dine-in market with the take out prices in the meal delivery market where the delivery companies enjoy monopoly power.

For years, competition authorities and courts across the EU have been asked how to deal with price parity clauses used by online platforms (also called most favoured nation clauses or MFNs), in particular in the hotel booking sector. These clauses enable the platform to require that suppliers do not offer lower prices or better terms on other platforms or on their own websites. Price parity clauses can be “wide”, if they prevent the supplier from offering better terms on other sales channels or they can be “narrow” if they prohibit the supplier from offering better terms on its own website. The way that competition enforcers in the EU have viewed the legality of these clauses has varied considerably and caused a degree of legal uncertainty for businesses.

However, with online platforms becoming an increasingly important part of the economy, the European Commission is currently reviewing certain of its policies (including a revamp of its e-commerce and competition rules for online platforms) to ensure that they are fit for purpose in this increasingly digital world. As part of this process, the Commission is reviewing the current block exemption regulations for both vertical (agreements between undetakings operating at different levels of supply) and horizontal (agreements between competitors).

Progress is expected before the end of the year, despite the COVID-19 crisis.

In the context of merger control, online platforms have specific economic features which require adjustments to conventional merger analysis and can have radically different implications for the assessment of how mergers between them will affect competition. These features were seen in the UK merger between Just Eat and Hungryhouse, two online takeaway aggregation platforms, which was (eventually) cleared unconditionally by the UK Competition and Markets Authority (CMA) phase II investigation in November 2017.

Amazon's recent minority stake acquisition in Deliveroo, a UK-based online delivery company, looks set to be cleared by the CMA. While initially the CMA embarked on a phase II investigation, the COVID-19 crisis intervened and the CMA has now signalled that without Amazon's investment, Deliveroo would not be able to meet its financial commitments and would have to exit the market. Views on these provisional findings can be submitted to the CMA until 17:00 on Monday 11 May 2020 (by law, a final decision is required by 11 June 2020). In addition, food-delivery company's £6.2 bn acquisition of Just Eat has also been cleared by the CMA (23/4/2020), 26 days ahead of the statutory deadline. The CMA noted that, after carefully investigating its concerns, and scrutinising large volumes of the two companies' own internal business documents, it was satisfied that there is not a material likelihood that would have re-entered the UK in the future, had the merger not gone ahead.

Latest insights

More Insights