The Competition Commission of India has said that Ola and Uber (India, Netherlands and the US registered companies) cannot be accused of price fixing just because they algorithmically decide the ride fares, reports LiveLaw. This issue was brought up in a complaint (pdf) filed with the CCI by Samir Agrawal, a legal practitioner, who said that algorithmic pricing took away drivers’ liberty to compete with each other and therefore resulted in price fixing.

The CCI dismissed the case saying that Uber and Ola were taxi companies, and not platforms like Zomato, Trivago and AirBnB (which Agrawal had equated them to), where users had the freedom of choice to select from multiple options. It added that the fare pricing was dynamic based on multiple factors like the user’s ride history, the traffic situation, special conditions/events, festivals, weekday/weekend depending on the demand and supply. Therefore, the pricing was different for each rider and trip “owing to the interplay of large data sets.”

While Agrawal is right about the opacity around cab aggregators’ pricing techniques, the CCI may not have been the right place to raise this issue. He argued that owing to ‘information asymmetry’, Ola and Uber charged riders on their willingness to pay for the service. The information asymmetry here refers to the cab companies having large amounts of information on the rider, but not vice versa. Agrawal claimed that in the absence of this, “the drivers could have differentiated themselves on the basis of price.”

State governments have, since 2015, attempted to regulate cab aggregators’ fares. See Maharashtra and Delhi guidelines. In May, the Delhi HC passed a stay order in a petition filed by NGO Nyaya Bhoomi against Ola and Uber for overcharging under the Motor Vehicles Act. The NGO petitioned against Ola and Uber for recovery of Rs 91,000 crores for allegedly overcharging riders.

Also read:
Karnataka puts Ola and Uber on notice for violating fare rules
Meru will allow drivers to set fares in a bid to compete with Uber, Ola

The current CCI case

Agrawal’s argument was –

  • Algorithmic pricing by aggregators “takes away the liberty of individual drivers to compete with each other and thus, amounts to price fixing” in contravention to the provisions of Section 3 of the (Competition) Act.
  • Algorithmic pricing also means that riders cannot negotiate fares with individual drivers (for rides matched through the apps), nor can drivers offer any discounts.
  • Therefore, the algorithm takes away the freedom of the riders and drivers to choose “the other side on the basis of price competition and both have to accept the price set by the algorithm.”
  • Since Ola/Uber does not own any taxis and operates as a platform, it is comparable to Zomato, Trivago or AirBnB. However, in the latter’s models, the price is not fixed by the platforms, but by the independent restaurants or properties.
  • “However, in case of Ola/Uber, the driver is assigned a ride for a fare determined by the App, due to which suppliers/competitors/drivers indulge in price fixation (sic)… The algorithm artificially manipulates supply and demand which guarantees higher fares to drivers who would otherwise compete against one another on price and would not be able to command such high prices.”
  • Ola and Uber prevent the drivers from competing on fares, similar to a trade association facilitating a cartel. Agrawal added, “A cartel is a cartel, even if price fixing is achieved by way of an App and the OPs (companies) cannot claim any immunity from the provisions of the Act on the pretext of ‘App’ based pricing.”
  • Agrawal added that because of information available to the companies, they could charge users based on their willingness to pay instead of the ‘fair price’ for the ride. This was helped by the fact that they are “under no legal obligation to publicly disclose data regarding the calculation of such prices.”

He added that drivers had a common motive to adhere to the companies’ pricing algorithm which resulted in artificially high fares.

The allegation further stated that Ola and Uber imposed a minimum price level on drivers, contravening the “Resale Price Maintenance under Section 3(4)(e) of the Act.” This section of the Act refers to a situation in which the original seller determines the price at which the reseller will sell the product, unless the price of the product is lower than the original price.

The CCI, on the other hand said that it would treat this case independently and prima facie. 

  • The hub and spoke model does not apply to cab aggregators. Fare estimation is done by the algorithm on the basis of large data sets (big data) and takes into account personalised information along with factors like time of the day, traffic situation, special conditions/events, festivals, weekday/weekend depending on the demand and supply. Therefore, the pricing is different for each rider and trip.
  • Cartelisation through hub and spoke would require spokes to use a third party platform for exchange of sensitive information including info which could facilitate price fixing, there would also need to be a conspiracy to fix prices which requires existence of collusion in the first place.
  • Drivers accepting the algorithmically determined prices does not amount to collusion between the drivers. Drivers also do not set prices through the platform, nor do they have the liberty to reject the price calculated by the companies or offer their services at a lower price than the said price. So reselling of the services with different prices does not happen.
  • “Determination of price by the OPs (companies) is integral to the functioning of the aggregation-based models… Resale price maintenance, under the provisions of the Act, is essentially setting of a floor price on resale. In case of app-based taxi services, the dynamic pricing can and does on many occasions drive the prices to levels much lower than the fares that would have been charged by independent taxi drivers.”
  • Therefore, there is no fixed floor price set and maintained by aggregators. “… the centralized pricing mechanism cannot be viewed as a vertical instrument employed to orchestrate price-fixing cartel amongst the drivers.” The CCI added that Agrawal has “come to an erroneous conclusion without placing any evidence on record, that an algorithm determined price as explained above will eliminate price competition and that the price so determined will be necessarily higher than the prices that are negotiated by drivers and the riders on an individual trip basis.”
  • The price discrimination allegation is also not supported by any evidence. And since there are 2 players, there is no dominant enterprise.
  • The CCI found that ‘the cartelisation of drivers in a digital mode’ argument “devoid of an understanding of economic literature and practical realities of the digital markets.”
  • The comparison with AirBnB, Trivago and Zomato is misconstrued because sellers on these platforms have their own identities, and choices from a variety of offerings, which is not the same as the services of cab aggregators where users do not have information about the drivers in the area.
  • In Fast Track Call Cabs vs. ANI Technologies (Case No. 06 and 74 of 2015 decided on 19.07.2017) the CCI considered Ola a radio taxi operator and not merely a platform, while the European Court of Justice also held Uber as a transport company in Asociación Profesional Élite Taxi v. Uber Systems Spain SL (C-434/15), and hence cannot be compared with AirBnB, Trivago and Zomato which are platforms.