Sharing economy and competition law: another chapter in the ride-hailing wars

Written on 20 Dec 2018

In another chapter in the European theatre of the ride-hailing wars the battle was, on this occasion, won by a ride-hailing platform when the Spanish competition authority (CNMC) dismissed a legal complaint presented by the Madrid Municipality.

In another of the battles that taxi drivers are fighting against ride-hailing services all over Europe, the Spanish CNMC has dismissed a legal complaint presented by the mobility branch of the Madrid Municipality on grounds of predatory pricing or dumping.

This case is interesting since, under the Spanish Competition Act (SCA), the CNMC can analyse whether a typical instance of unfair competition conduct could translate into a competition law infringement. Decisions that apply this SCA provision are rare (article 3 of the SCA) since to be considered an infraction, the facts must have such an impact on the market and public interest, that few cases make the cut.

The Madrid Municipality complaint

In an effort to try to protect the taxi services of the city of Madrid, the mobility branch of the Madrid Municipality presented a complaint before the CNMC against a ride-hailing platform. The Madrid Municipality believed that a special offer made by the platform in summer 2017 was unfair and could configure an infringement of the SCA.

During summer 2017, the platform, launched an offer which consisted of a two-month flat rate to and from the Madrid airport, complemented with 50% discounts to and from major train stations of the city.

The Madrid Municipality believed that this offer could constitute an infraction against unfair competition rules that condemn predatory pricing or dumping.

The market situation analysis undertaken by the CNMC

Before analysing the facts from a legal perspective, the CNMC analyzed the current situation of the market to see if discounts like the one offered by the platform were normal, and to understand the market dynamics. It found:

  • Firstly, that the relative weight of ride-hailing services in the Madrid and national markets (services that use an app and are not taxi) is very small in comparison to that of the taxi.
  • Secondly, that most of the taxis operating in Madrid not only had the monopoly of picking-up customers while circulating, but also, that most of the Madrid taxis used intermediation services such as apps (i.e. Mytaxi) and radio calls without any exclusivity constraints.
  • Thirdly, that the taxi fees were regulated by law.
  • Finally, that special offers like the one offered in this case were common in the market, including offers made by taxi apps, like Mytaxi.

The Spanish legal framework for transportation

Before applying the legal standard, the CNMC conducted a brief regulatory analysis of the passenger car transport service market in Spain.

The regulation of the market was transferred from the Estate government to regional governments in 1987. The regional regulations imposed on ride-hailing service providers were not exactly the same as the ones imposed on taxis.

The Estate sectorial regulations allow regional administrations to deny the issuance of new licenses to maintain the “adequate equilibrium” between taxis and ride-hailing providers (one ride-hailing license per 30 taxi licenses). Ride-hailing services cannot, for instance, pick up clients in the streets, but instead must do so via their apps. Additionally, the ride-hailing license holder cannot render services outside the region that granted the license in more than 20% of the provided services in one month, among other regulatory requirements.

The CNMC’s legal analysis

After framing the facts in its regulatory environment, and before deciding whether the conduct fell within article 3 of the SCA, the CNMC analysed whether the conduct could constitute an infraction against articles 1 and 2 of the SCA (anticompetitive agreements and abusive conducts).

In its analysis of article 1, the CNMC found that the platform’s conduct was unilateral and therefore there was no anticompetitive agreement.

Then, when analysing whether the conduct constituted an abuse of dominance, the CNMC found that the platform holds a relatively small market share in the market, not only because of the existence of a local ride-hailing service, Cabify, but also, because taxis also compete with these services utilising apps designed for taxis.

Finally, when analysing whether the denounced conduct could amount to a predatory pricing or dumping conduct under the Spanish unfair competition rules, via article 3 of the SCA, the CNMC dismissed the Madrid Municipality complaint for the following reasons:

  • No evidence supported the claim that the offer made by the platform was at a price below its costs. In any event, a comparison with the regulated taxi tariffs was not valid, since the CNMC could not be certain of the link between those tariffs and the cost of providing the taxi services that they related to.
  • The platform’s position in the market was not strong enough to consider that the offer was predatory in nature. Likewise, the offer lacked continuity and was not aimed at excluding a competitor from the market.
  • The offer explicitly mentioned that it was an offer; the offer could not mislead on the actual price of the service. Likewise, the offer could not discredit other competitors.
  • Finally, and perhaps most importantly, , the CNMC did not consider the platform’s offer to be part of a predatory strategy to eliminate competitors. On the contrary, the CNMC explicitly took into account that the platform was a new entrant in the relevant market, that its fleet of vehicles was the smallest one among its competitors and that the offer was limited in time and focused only on specific journeys.

The CNMC also dismissed the anticompetitive nature of the platform’s offer, since by the very nature of the regulation of the market, and its 30-to-1 ratio, it was highly unlikely that the platform could increment significantly its services offered or could grow in the relevant market.

The CNMC finished its analysis by mentioning that the services offered by ride-hailing apps were a sign that the market was experiencing healthy competition (lower prices, more offer, more information and better service), and this competition was a result of the growing demand for alternative mobility services in a complex urban setting like the one of Madrid.

Comment

In essence, this decision reflects that the legal standard to consider that unfair competition conduct constitutes an infringement under the Spanish defense of competition act is a narrow one. Moreover, it also reflects that when applying article 3, the CNMC could also be taking into account the procompetitive effects of the issue at hand, and not only the unfair competition rationale.

This is positive news for digital economy actors, since it gives them legal certainty on how their products and services, and the way they promote them in the market, would be assessed by the Spanish CNMC.