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The Uber Time Bomb

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The Uber Time Bomb

Posted By Cab4Now

25,000 Uber drivers today and that number is set to double in a few months. A huge success story? Or the biggest fraud to be perpetrated against the British taxpayer in recent history? Whatever your take on the situation the impact of Uber on the private hire industry and London in general may prove to be a disaster sooner rather than later.

Last month I made a point of speaking to as many Uber drivers as possible. Without exception the 27 UberX drivers I spoke to stated that they are now earning less than £100 per 12 hour shift. The two UberExec drivers I spoke to cannot be a representative sample so I will ignore their comments.

Again, without exception, all the UberX drivers I spoke with have family members that are dependent on them either in this country or overseas. In most cases they are the sole income provider and most receive a variety of benefits. I say most because some were less inclined to share what benefits, if any, they received as a result of their low net income. Those that would not divulge details I cannot comment on further but it is a fact that the majority claim a variety of benefits.

The standard fares on UberX are now priced at a level which is clearly abusive. Drivers are subsidised by tax credits and the irony is that Uber as a company pays no tax to the British exchequer.

Due to Uber’s dominance there may now be a case for banning its abusive behaviour. Their business model would then collapse. Nobody would pay true market rates for crap. Uber is now dominating the London minicab market via anti-competitive practices through predatory pricing which have led it to such a dominant position. And what’s even scarier is that prices will fall even lower later this year on UberX unless Uber are brought to book sooner.

Uber_Predatory_Pricing_ParisPredatory pricing in the UK is illegal. It is also prohibited under EU Competition Law to sell services at a loss with the purpose of forcing other firms out of business. Clearly, the UberX service is provided at a loss because the majority of UberX drivers are subsidised by benefits due to UberX driver net earnings being considerably less than the amount decided as acceptable for a living hourly income.

Last month mass strikes across France exploded into violence as Paris taxi drivers brought roads to a standstill. There was fighting on the ring road of the French capital as masked men and women stopped cars and other vehicles in the morning rush hour. I believe it will not be long before we see this on the streets of London.

A taxi driver was seriously injured at Orly airport as a shuttle bus tried to force its way through a blockade. In turn, other taxi drivers threw stones at the bus’s windows and forced passengers to get off the vehicle. In Marseille, striking drivers caused traffic jams around the city and its Marignane airport. Rachid Boudjema, 37, president of the taxi drivers union in Marseille attacked “American cowboys” who “want to destroy our system, the system we are all attached to”.

Uber’s predatory pricing is a pricing strategy where their service is  set at a very low price, intending to drive competitors out of the market, or to create barriers to entry for potential new competitors. If competitors or potential competitors cannot sustain equal or lower prices without losing money, they go out of business or choose not to enter the business.

It is usually difficult to prove that prices are low because of deliberate predatory pricing rather than legitimate price competition. However, for the reasons I gave above – UberX drivers receiving benefits – I believe a prima facie case easily exists against Uber. Sadly, many competitors may be driven out of the market before a case against Uber is ever heard. This applies equally to London taxi drivers, London minicab operators and many London minicab drivers.

The history of competition law reaches back to the Roman Empire. The business practices of market traders, guilds and governments have always been subject to scrutiny, and sometimes severe sanctions. Since the 20th century, competition law has become global. The two largest and most influential systems of competition regulation are United States antitrust law and European Union competition law.

So why is no one in London’s private hire or taxi trade organisations running a legal challenge against Uber on grounds that have a reasonable chance of success? They really do seem to pick their legal challenges poorly. The Uber app is a meter springs to mind. Ridiculous. Frankly, London minicab drivers and London taxi drivers deserve better from their operators and trade bodies respectively. It stretches the bounds of reason that not one single organisation is prepared to challenge Uber in court on this matter using European Union competition law.

Legislation in England to control monopolies and restrictive practices were in force well before the Norman Conquest. The Domesday Book recorded that “foresteel” (i.e. forestalling, the practice of buying up goods before they reach market and then inflating the prices) was one of three forfeitures that King Edward the Confessor could carry out through England.

But concern for fair prices also led to attempts to directly regulate the market. Under Henry III an act was passed in 1266 to fix bread and ale prices in correspondence with grain prices laid down by the assizes. Penalties for breach included amercements, pillory and tumbrel. A 14th century statute labelled forestallers as “oppressors of the poor and the community at large and enemies of the whole country.” Is Uber the modern day forestaller? I believe so. Uber may also be far more dangerous for other reasons which I will come to in a moment.

Under King Edward III the Statute of Labourers of 1349 fixed wages of artificers and workmen and decreed that foodstuffs should be sold at reasonable prices. On top of existing penalties, the statute stated that overcharging merchants must pay the injured party double the sum he received, an idea that has been replicated in punitive treble damages under US antitrust law.

Uber_Government_Tax_FraudWe live in an age of forced immigration by our inept government. I have no issue with refugees. But in the current frenzied media and political debate about the chaotic situation in Calais and the benefits abuse by migrants in Britain, the complex legal distinctions between asylum seekers, refugees and economic migrants has been lost. I will not dwell on this other than to say that my position is that refugees are welcome. We should do more. But due to an over supply of labour which is useful to Uber and encouraged by the UK government asylum seekers and economic migrants are not welcome.

Why are asylum seekers and economic migrants not welcome?  Simple. The over supply of labour in London has now reached a critical point. I believe, that when another downturn comes, perhaps as soon as later this year, we may see crime on a level that would not be considered normal in a third world capital let alone London. 2009 was a bad year for London’s minicab industry. Driver earnings collapsed. When the next crash comes, as it will, the 150,000+ London minicab and taxi drivers will not be able to support their families and along with disenfranchised workers in other industries society may break down completely. Can’t feed your family? No work. An explosive mix.

Uber is in a destructive race to the bottom, and its drivers are so severely underpaid that in London the British taxpayer is subsidising them and, ultimately, Uber too. There is clearly a legal case to answer against Uber and it is a high stakes game.

It is my contention that an aggressive, predatory Uber preys on its competitors by charging below-cost predatory prices and this is an attempt to drive all of its rivals out of business. If successful, the predatory Uber will be rewarded with complete control of the London minicab market and it will then proceed to jack up prices to take advantage of its dominant monopoly position.

The predatory Uber wins, and the rivals, consumers and drivers – both minicab and taxi – lose.

However, irrespective of legislation some would argue that the predatory Uber scenario will never actually happen. In a market economy, as soon as the predatory Uber raises its prices and earns monopoly profits the enticing and redolent “smell of profits” would attract new rival firms who will enter the London minicab industry. They would quickly erode Uber’s monopoly profits through vigorous competition and price-cutting. But a much better and more realistic strategy for Uber is to control the market (like Amazon maybe?) and it would keep its prices so low that no rival could successfully compete against it. This may be Uber’s end game with many London minicab drivers prepared to work part time for a bowel of rice and be topped up with benefits. Is that right? Is it fair? Is it legal? No to all, I suggest.

For all the rhetoric from Uber about the value of competition, the goal of Uber’s pricing is is to neutralise the competition and become the only minicab company in London. Which would mean more market power, over both drivers and consumers, probably to the detriment of both. In the broadest sense, this is a neo feudalism where Uber will take control of individuals and cultures through policies, practices, money and gatekeeping to the point where they could end up controlling many aspects of London taxi and minicab driver’s everyday private life as I wrote about on July 7, 2013.

But it’s a great time to invoke the timeless wisdom and insight of French economist Bastist, who four days before his death in 1850 wrote this in a letter to a friend: “Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.” This is pretty much what the Uber PR machine does hundreds of times every day. The trade organisations that represent London taxi drivers and major London private hire operators haven’t realised this yet. Until they do their efforts to garner support against Uber will be limited. London minicab and London taxi drivers really do deserve better

Uber_Predatory_Pricing_TaxiIf London minicab operators fail to cut their prices, they will lose virtually all of their market share; if they do cut their prices, they will eventually go bankrupt because their minicab drivers will leave. They are between a rock and a hard place. This situation is even more serious for London taxi drivers because their prices are so much higher anyway.

After the competition has been forced out of the market, the predatory Uber will raise its fares, increase the commission charged to drivers and compensate itself for the money it lost while it was engaged in predatory pricing and may earn monopoly profits forever after.

However, Uber may argue in court that the theory of predatory pricing whilst always seeming to have a grain of truth to it — at least to non-economists — research over the past 35 years has shown that predatory pricing as a strategy for monopolising an industry is irrational. Indeed, that there has never been a single clear-cut example of a monopoly created by predatory pricing, and that claims of predatory pricing are typically made by competitors who are either unwilling or unable to cut their own prices. Predatory pricing gets virtually no respect from economists. But it is still a popular legal and political theory which Uber should answer to in court. The law is there. Let;’s use it.

But all is not lost. If you don’t like the predatory pricing lawsuit then London private hire operators and London taxi trade bodies could choose The Treaty of Lisbon Article 107 which lays down a general rule that the UK government may not aid or subsidise private parties in distortion of free competition. Remember the Addison Lee bus lane argument? It failed but this was the Article that was relied on. Uber is receiving millions by indirect subsidy of their UberX drivers through state benefits. This may be the best avenue for legal action against Uber. Under UK law there is also a case to answer for predatory pricing but this may be a little more difficult to prove for the reasons I have given above.

I rest the case for the prosecution of Uber, My Lord.

Finally, a private criminal prosecution of David Cameron and Boris Johnson for malfeasance thrown in to the mix as well would be great. There are several avenues to explore. Will anybody pick up the mantle? I truly hope so. Or Uber may be a major contributing factor to the breakdown of society in London and a crime epidemic that will not have been seen on the streets for decades.

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