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Uber/Grubhub Merger Sparks Rising Concern over Pandemic Profiteering

Uber/Grubhub: Pandemic Profiteering, Merger Moratoriums, and Rising Concentration … Or Not

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This article was originally published by Truth On The Market.

[TOTM: The following is part of a blog series by TOTM guests and authors on the law, economics, and policy of the ongoing COVID-19 pandemic. The entire series of posts is available here.

This post is authored by Eric Fruits, (Chief Economist, International Center for Law & Economics).]

Earlier this week, merger talks between Uber and food delivery service Grubhub surfaced. House Antitrust Subcommittee Chairman David N. Cicilline quickly reacted to the news:

Americans are struggling to put food on the table, and locally owned businesses are doing everything possible to keep serving people in our communities, even under great duress. Uber is a notoriously predatory company that has long denied its drivers a living wage. Its attempt to acquire Grubhub—which has a history of exploiting local restaurants through deceptive tactics and extortionate fees—marks a new low in pandemic profiteering. We cannot allow these corporations to monopolize food delivery, especially amid a crisis that is rendering American families and local restaurants more dependent than ever on these very services. This deal underscores the urgency for a merger moratorium, which I and several of my colleagues have been urging our caucus to support.

Pandemic profiteering rolls nicely off the tongue, and we’re sure to see that phrase much more over the next year or so. 

Grubhub shares jumped 29% Tuesday, the day the merger talks came to light, shown in the figure below. The Wall Street Journal reports companies are considering a deal that would value Grubhub stock at around 1.9 Uber shares, or $60-65 dollars a share, based on Thursday’s price.

But is that “pandemic profiteering?”

After Amazon announced its intended acquisition of Whole Foods, the grocer’s stock price soared by 27%. Rep. Cicilline voiced some convoluted concerns about that merger, but said nothing about profiteering at the time. Different times, different messaging.

Rep. Cicilline and others have been calling for a merger moratorium during the pandemic and used the Uber/Grubhub announcement as Exhibit A in his indictment of merger activity.

A moratorium would make things much easier for regulators. No more fighting over relevant markets, no HHI calculations, no experts debating SSNIPs or GUPPIs, no worries over consumer welfare, no failing firm defenses. Just a clear, brightline “NO!”

Even before the pandemic, it was well known that the food delivery industry was due for a shakeout. NPR reports, even as the business is growing, none of the top food-delivery apps are turning a profit, with one analyst concluding consolidation was “inevitable.” Thus, even if a moratorium slowed or stopped the Uber/Grubhub merger, at some point a merger in the industry will happen and the U.S. antitrust authorities will have to evaluate it.

First, we have to ask, “What’s the relevant market?” The government has a history of defining relevant markets so narrowly that just about any merger can be challenged. For example, for the scuttled Whole Foods/Wild Oats merger, the FTC famously narrowed the market to “premium natural and organic supermarkets.” Surely, similar mental gymnastics will be used for any merger involving food delivery services.

While food delivery has grown in popularity over the past few years, delivery represents less than 10% of U.S. food service sales. While Rep. Cicilline may be correct that families and local restaurants are “more dependent than ever” on food delivery, delivery is only a small fraction of a large market. Even a monopoly of food delivery service would not confer market power on the restaurant and food service industry.

No reasonable person would claim an Uber/Grubhub merger would increase market power in the restaurant and food service industry. But, it might convey market power in the food delivery market. Much attention is paid to the “Big Four”–DoorDash, Grubhub, Uber Eats, and Postmates. But, these platform delivery services are part of the larger food service delivery market, of which platforms account for about half of the industry’s revenues. Pizza accounts for the largest share of restaurant-to-consumer delivery.

This raises the big question of what is the relevant market: Is it the entire food delivery sector, or just the platform-to-consumer sector? 

Based on the information in the figure below, defining the market narrowly would place an Uber/Grubhub merger squarely in the “presumed to be likely to enhance market power” category.

  • 2016 HHI: <3,175
  • 2018 HHI: <1,474
  • 2020 HHI: <2,249 pre-merger; <4,153 post-merger

Alternatively, defining the market to encompass all food delivery would cut the platforms’ shares roughly in half and the merger would be unlikely to harm competition, based on HHI. Choosing the relevant market is, well, relevant.

The Second Measure data suggests that concentration in the platform delivery sector decreased with the entry of Uber Eats, but subsequently increased with DoorDash’s rising share–which included the acquisition of Caviar from Square.

(NB: There seems to be a significant mismatch in the delivery revenue data. Statista reports platform delivery revenues increased by about 40% from 2018 to 2020, but Second Measure indicates revenues have more than doubled.) 

Geoffrey Manne, in an earlier post points out “while national concentration does appear to be increasing in some sectors of the economy, it’s not actually so clear that the same is true for local concentration — which is often the relevant antitrust market.” That may be the case here.

The figure below is a sample of platform delivery shares by city. I added data from an earlier study of 2017 shares. In all but two metro areas, Uber and Grubhub’s combined market share declined from 2017 to 2020. In Boston, the combined shares did not change and in Los Angeles, the combined shares increased by 1%.

(NB: There are some serious problems with this data, notably that it leaves out the restaurant-to-consumer sector and assumes the entire platform-to-consumer sector is comprised of only the “Big Four.”)

Platform-to-consumer delivery is a complex two-sided market in which the platforms link, and compete for, both restaurants and consumers. Platforms compete for restaurants, drivers, and consumers. Restaurants have a choice of using multiple platforms or entering into exclusive arrangements. Many drivers work for multiple platforms, and many consumers use multiple platforms. 

Fundamentally, the rise of platform-to-consumer is an evolution in vertical integration. Restaurants can choose to offer no delivery, use their own in-house delivery drivers, or use a third party delivery service. Every platform faces competition from in-house delivery, placing a limit on their ability to raise prices to restaurants and consumers.

The choice of delivery is not an either-or decision. For example, many pizza restaurants who have their own delivery drivers also use platform delivery service. Their own drivers may serve a limited geographic area, but the platforms allow the restaurant to expand its geographic reach, thereby increasing its sales. Even so, the platforms face competition from in-house delivery.

Mergers or other forms of shake out in the food delivery industry are inevitable. Mergers will raise important questions about relevant product and geographic markets as well as competition in two-sided markets. While there is a real risk of harm to restaurants, drivers, and consumers, there is also a real possibility of welfare enhancing efficiencies. These questions will never be addressed with an across-the-board merger moratorium.

The post Uber/Grubhub: Pandemic Profiteering, Merger Moratoriums, and Rising Concentration … Or Not appeared first on Truth on the Market.

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How Inflation Changes Culture

How Inflation Changes Culture

Authored by Jeffrey Tucker via DailyReckoning.com,

The midterm elections are over (no Red Wave), but nothing…

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How Inflation Changes Culture

Authored by Jeffrey Tucker via DailyReckoning.com,

The midterm elections are over (no Red Wave), but nothing has changed. In fact, the Biden regime will probably become even more emboldened to pursue destructive economic policies because it will interpret the lack of a Red Wave as some kind of mandate.

Every day seems to be a day of spin, with every regime apologist assuring the public that inflation is getting better. Just look at the wonderful trend line! They point to the latest inflation numbers, which were down a bit from the month prior.

The regime insists that yes, inflation will vex us for a bit more time but will settle down in a few months. Plus, the president is working to fix this! And we know the American people are on board with him since no Red Wave materialized.

But in the footnotes, you’ll find the truth: it was a tiny drop and mostly for technical reasons and the main reason for the drop has already disappeared from the price trends.

Has any political propaganda on this topic ever been this ineffective? It’s truly a joke.

Where’s the Relief Coming From?

The producer price index that came out recently paints a clearer picture. It’s grim. It reveals no softening at all. In fact, it shows that there are plenty of coming price increases. Here is the index by commodities from 2013 to the present.

Remember how last year many people finally came to the conclusion that we had to learn to live with COVID? That was a smart choice because there was no way that the China-style suppression method could work.

Well, here we are now with a preventable inflation pandemic and the realization that we have to learn to live with inflation. Soon we’ll realize that we have to live with recession at the same time.

But what does this mean?

The impact will be felt not just in terms of economics but in culture. Inflation causes a society-wide shortening of time horizons.

True Prosperity

Let’s review some basics. All societies are born desperately poor, fated to live off foraging and just getting by. Prosperity is built through the construction of capital, which is the institution that embodies forward thinking.

To make capital requires the deferral of consumption: you have to give up some today in order to make tools that enable more consumption tomorrow. This means discipline and a future orientation. And it means, above all, savings that can be invested in productive projects. Only through that path can societies grow rich.

A key component of this concerns the stability of the medium of exchange. And not just stability: a currency that rises in value over time incentivizes saving and thus investing for the long term.

The late 19th century provided a good example of this. Under the gold standard, money grew more valuable over time, thus rewarding long-term thinking and instilling that outlook in the culture at large.

Live for Today

Inflation has the opposite effect. It punishes saving. It forces a penalty on economic behavior that is future-oriented. That means also discouraging investment in long-term projects, which is the whole key to building a complex division of labor and causing wealth to emerge from the muck of the state of nature. Every bit of inflation trims back that future orientation.

Hyperinflation utterly wrecks it.

Living for the day becomes the theme. Taking what you can get now is the method and the theme. Grasping and spending. You might as well because the money is only going down in value and goods are in ever shorter supply.

Better to live hard and short and forget the future. Go into debt if possible. Let the devaluation itself pay the price.

The Seeds of Destruction

Once this attitude becomes instilled in a prosperous society, what we call civilization gradually devolves. If inflation persists, this kind of short-term thinking can wreck everything.

This is why inflation is not just about rising prices. It’s about declining prosperity, the punishing of thrift, the discouragement of financial responsibility, and a culture that gradually falls apart.

Another factor in reducing time horizons is legal instability. This was my first concern when the lockdowns began. Why would anyone start a business if governments can just shut it down on a whim? Why plan for the future when that future can be wrecked by the stroke of a pen?

Many people had assumed that this new path would be short-lived. Surely the politicians would wise up and stop the madness. Surely! Tragically, it got worse and worse. The spending and printing began and ramped up over time. It was a perfect storm of sheer madness, and now we are paying the highest possible price.

The Hinge of History

We need to speak frankly about what’s happening to the global economy. It’s not just about supply chain breakages. Those can be repaired. It’s not just about inflation affecting every country. We are living amidst a fundamental upheaval in the whole world.

The most significant single danger to global prosperity now comes in the form of a devastating and deeply tragic wreckage of the country that was set to lead the world in finance and technology: China.

The WSJ summarizes the current pain:

China in 2021 accounted for 18.1% of global gross domestic product, according to International Monetary Fund data, behind the U.S. at 23.9% but ahead of the 27 members of the European Union at 17.8%. It accounts for almost a third of global manufacturing output, according to United Nations data from 2020. China’s economy expanded modestly at the beginning of the year but data for March and April point to a sharp slowdown.

The trouble there traces to the top. When Xi Jinping locked down Wuhan, the world celebrated him for achieving what no other leader in history had achieved: the eradication of a virus in one country. Even now, he gets accolades for this.

The rest of the world followed, and elites in all countries said that this path was the future.

Going Backwards

Now the virus is on the loose all over the country, and the eradication methods are intensifying. This is crushing economic growth and now threatening genuine economic depression in the country that only a few years ago was seen as the greatest economic engine of the world.

It’s truly the case that Xi Jinping has put his personal pride above the well-being of all people in China. The scientists in the country know that he is wrong about this but no one is in a position to tell him.

We cannot really trust the data coming out of China but officially the rate of infection in that country is one of the lowest in the world. Billions more people need to get the bug and recover in order to have anything close to herd immunity. This means that lockdowns are the way for years to come so long as the present regime remains in power.

American prosperity for decades has relied on: relatively low inflation, fairly stable rules of the game, and widening trade with the world and China in particular. All three are at an end. Yes, it is heartbreaking to watch it all unfold.

I’m not defending China’s human rights abuses. Far from it. But the best way to end these abuses is through engagement, not estrangement.

We all need hope right now but it’s very difficult to find, since we are on a course that is not likely to be fixed for a very long time.

Tyler Durden Wed, 11/30/2022 - 19:05

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Protests in China are not rare — but the current unrest is significant

Comparisons have been made to the 1989 demonstrations that led to the Tiananmen Square massacre. An expert on Chinese protests explains why that it half…

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Protesters march along a street in Beijing on Nov. 28, 2022. Noel Celis/AFP via Getty Images

Street protests across China have evoked memories of the Tiananmen Square demonstrations that were brutally quashed in 1989. Indeed, foreign media have suggested the current unrest sweeping cities across China is unlike anything seen in the country since that time.

The implication is that protest in China is a rarity. Meanwhile, the Nov. 30, 2022, death of Jiang Zemin – the leader brought in after the bloody crackdown on 1989 – gives further reason to reflect on how China has changed since the Tiananmen Square massacre, and how Communist party leaders might react to unrest now.

But how uncommon are these recent public actions? And how do they compare with the massive weekslong demonstrations of 1989?

Having written extensively on protest in China, I can attest that protests in China are not at all uncommon – but that doesn’t make what is happening now any less significant. Alongside similarities between the current street actions and more typical protests of recent years, there are also parallels between the demonstrations today and those in 1989. Yet differences in China’s international status and domestic leadership reduce the chances for liberal democratic transformation now.

Not so unusual, but still unique

The current protests are ostensibly about the Chinese government’s strict “zero COVID” policies. They were triggered by a deadly fire in the northwestern city of Urumqi on Nov. 24, with some residents blaming lockdown rules for hampering rescue efforts. Unrest has since spread to multiple cities, including Beijing and Shanghai.

The specifics are unique to the pandemic. But in many respects, what we are seeing is not new or unusual – protests, in general, are not rare in China.

In fact, from 1990 through the present, popular protests have been more frequent and widespread in China than they were in the years leading up to the Tiananmen Square-centered demonstrations.

According to Chinese government statistics, the yearly count of domestic “mass incidents” or “public order disturbances” – euphemisms used to refer to everything from organized crime to street protests – rose from 5,000 to 10,000 in the early 1990s to 60,000 to 100,000 by the early 2000s.

Despite the lack of official numbers since 2006 – which ceased to be published after that year – verbal statements by Chinese officials and research by scholars and nongovernment organizations estimate the number of yearly protests to have remained in the high tens-of-thousands.

When protests turn political

This is not to say the recent multi-city protests are unsurprising or insignificant. To the contrary, the current media spotlight is, I believe, well-deserved.

Nearly all the thousands of protests appearing every year in the post-Tiananmen Square period have been localized and focused on specific material issues. They occur, for example, when villagers feel they are unfairly compensated for land acquisitions, when private sector workers are not paid, or when residents suffer from environmental degradation caused by waste incinerators.

In contrast, the anti-lockdown protests have emerged in numerous cities – reporting by CNN suggests there have been at least 23 demonstrations in 17 cities. They are also all focused on the same issue: COVID-19 restrictions. Moreover, they are targeted at central Party leaders and official government policy.

For the the closest parallels in terms of size of protest, one has to go back to the late 1990s and early 2000s.

From 1998 to 2002, tens of thousands of state-owned enterprise workers in at least 10 Chinese provinces demonstrated against layoffs and enforced early retirements. And in 1999, roughly 10,000 members of the now-banned spiritual movement Falun Gong amassed in central Beijing to protest their suppression and demand legal recognition.

But these protests were directed at issues that specifically affected only these groups and did not critique China’s top political leaders or system as a whole.

The only post-1989 examples of overt collective political dissent – that is, public action calling for fundamental change to the mainland’s Chinese Communist Party-led political system – have been exceedingly small and transpired off the streets. In 1998, activists formed the China Democracy Party, declaring it a new political party to usher in liberal democratic multi-party governance. Though the party persisted openly for roughly six months, establishing a national committee and branches in 24 provinces and cities, its leaders ultimately were arrested and the party driven underground.

A decade later, a group of intellectuals led by writer Liu Xiaobo posted online a manifesto called “Charter 08” advocating for liberal democratic political reform. Liu, who later received the Nobel Peace Prize, was jailed as a result. He remained in prison until his death, from untreated cancer, in 2017.

And while the massive and sustained protests in Hong Kong over the past decade exemplify political dissent, protesters’ demands have remained confined to political reform in the Hong Kong Special Administrative Region of the People’s Republic of China.

Calls for change and for Xi to go

So how much do the current anti-lockdown protests resemble the demonstrations that shook the regime in the spring of 1989?

Both have involved urban residents from various walks of life, including university students and blue-collar workers.

And in each case, the demands of protesters have been mixed. They include specific material complaints: In 1989, it was the impacts of inflation; in 2022, it is the effects of lockdowns and incessant PCR testing.

But they also include broader calls for political liberalization, such as freedom of expression.

A giant white statue with arm aloft stand above 100s of people.
The Goddess of Democracy stood as a symbol of protest during the 1989 Tiananmen Square demonstrations. David Turnley/Getty Images

Indeed in some ways, the protesters of 2022 are being more pointed in their political demands. Those on the streets of at least two major cities have called on President Xi Jinping and the Chinese Communist Party to step down. Demonstrators in 1989 refrained from such system-threatening rhetoric.

That reflects the changing political realities of China then and now. In early 1989, Party leadership clearly was split, with more reform-oriented leaders such as Zhao Ziyang perceived as sharing the activists’ vision for change. As such, demonstrators saw a way of achieving their aims within the communist system and without a wholesale change in leadership.

The contrast with today is stark: Xi has a firm grip on the party. Even if Xi were to miraculously step down, there is no clear opposition leader or faction to replace him. And if the party were to fall, the resultant political void is more likely to bring chaos than orderly political transformation.

Yet if the Chinese Communist Party is a different entity now than it was in 1989, its response to unrest shares some traits. Central authorities in 1989 blamed the protests on foreign “black hands” seeking to destabilize China. The same accusations have been raised in online posts now.

In fact, the government response to recent protests follows a pattern that has played out time and again in post-1989 protests. There is little to no official media coverage of the protests or acknowledgment by central Chinese Communist Party leaders. At the same time, local authorities attempt to identify and punish protest leaders while treating regular participants as well-intended and non-threatening. Central criticism – and possible sanction – of local officials portrayed as violating national policies follows. Meanwhile, there are moves to at least partially address protester grievances.

It is a messy and inefficient way to respond to public concerns – but it has become the norm since 1989.

Teresa Wright does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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The International Monetary Fund’s Special Drawing Rights: Why a New Issuance is Necessary and Feasible at this Time, and Would Save Many Lives

PDF 1. The SDR issuance last year probably saved hundreds of thousands of lives, if we use, e.g., the Bank for International Settlements’ research on…

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1. The SDR issuance last year probably saved hundreds of thousands of lives, if we use, e.g., the Bank for International Settlements’ research on the relation between recessions and mortality. 

2. Yet the US Treasury Department is holding up the proposed issuance for this year and announced just weeks ago that a new allocation of SDRs is “not appropriate at this time.”

But, the world economy is vastly worse now than it was on August 2 last year when the SDR issuance was approved by the IMF. In July 2021, the IMF’s World Economic Outlook projected a very high 6.0 rate of growth for the world economy in 2021 (which proved accurate). By comparison, the latest IMF projection is for 3.2 percent this year (2022) and for 2.7 percent next year; this is a dramatic crash, and a possible global recession. (There have been only five global recessions in the past 70 years; see the World Bank’s most recent research [2020]). The impact on human lives is already large and will grow enormously larger unless more is done to aid developing countries

3. A new SDR issuance could make a significant difference in the US economy in the immediate future, due to the loss of export-related jobs here as demand for US exports falls with recessions in other countries.

The US economy lost an estimated 2.2 million export-related jobs (January 2020 to May 2021) due to loss of demand for US exports in the rest of the world because of the pandemic recession. (Reference: Special Drawing Rights Could Help Recover Millions of Export-Related US Jobs, and Create Even More, August 2021. Note also that the International Trade Administration estimates the number of US jobs supported by exports fell by 1.6 million from 2019 to 2020.)[1]

4. The SDRs last year were by far the largest source of any aid to developing countries in any year since the pandemic.

See Figure 7 here: 

No Voice for the Vulnerable: Climate change and the need for quota reform at the IMF, October 2022.

“Figure 1 shows how much larger the SDR allocation is for each group of developing countries covered by these initiatives (the Debt Service Suspension Initiative, DSSI; and the Catastrophe Containment and Relief Trust)

Note also that under the G20 Common Framework for Debt Treatments, DSSI countries are eligible but creditor countries failed to produce a single debt restructuring agreement through the framework since its launch in 2020. [2]

5. SDRs create no debt and have no conditions attached, making them 100 percent net positive, unlike, e.g., IMF loans. 

This is especially important right now, given the rise in sovereign debt since the pandemic, and rising interest rates, faced by developing countries.

IMF Managing Director Kristalina Georgieva said on October 13

We also must support vulnerable emerging markets and developing countries. It is tough for everybody, but it is even tougher for countries that are now being hit by a stronger dollar, high borrowing costs, and capital outflows—a triple blow that is particularly heavy for countries that are under a high level of debt […] especially for low-income countries where over 60% are at or near debt distress. (Emphasis added.)

6. The US Treasury Department (beginning with former secretary Mnuchin, who immediately killed the proposal for a new allocation of SDRs at the IMF when it was first made by the managing director in March 2020), has made only one argument against an issuance of SDRs: that more than 60 percent of the issuance goes to high-income countries, and that therefore it is more reasonable to “rechannel” those SDRs rather than issue new ones. This argument is deeply flawed: 

  1. It has been more than 14 months since the last issuance of SDRs and few if any SDRs have been effectively rechannelled. This is much too slow; 345 million people are now at risk of starvation, up from 135 million before the pandemic and from 276 million at the start of the year.

    As soon as Treasury gives the OK to SDRs, they can be unlocked for transfer to IMF member countries within weeks.

  2. There is no waste, creation, or use of resources involved in the SDRs distributed to high-income countries, because they cannot use them (countries must show need in order to convert SDRs to hard currency). China is in the same category as the high-income countries because it has more than $3 trillion in reserves. [3]

  3. Perhaps most importantly, the proposed rechanneling would convert SDRs from an international reserve asset that carries no debt and no conditions, to a loan that both creates debt and has conditionalities attached.[4]

7. There is no downside risk to a new issuance, and no economists have put forth credible economic arguments against an issuance.

8. There is no cost to the US budget, at present, or in the future, from a new issuance.

9. IMF-member countries under US sanctions (e.g., Iran, Venezuela, Russia, Myanmar, Belarus, Afghanistan, and Syria) have not been able to access their holdings of Special Drawing Rights.[5]

See figure: SDR Holdings for Member Countries with Sanctioned Central Banks or Unrecognized Governments, August 2021 and July 2022: in Special Drawing Rights One Year Later, By the Numbers, August 2022. 

10. Finally, a related problem: the imposition of IMF surcharges — additional fees that heavily indebted borrowing countries are forced to pay — is another issue that the US Congress is taking up, because of the regressive nature of the surcharges and the damage they cause, which increases as the world economy worsens. Surcharges are added to interest payments that increase with the Federal Reserve’s rate hikes, and with the rising dollar.[6]


[1] Special Drawing Rights Could Help Recover Millions of Export-Related US Jobs, and Create Even More, August 2021. Note also that the International Trade Administration estimates the number of US jobs supported by exports fell by 1.6 million from 2019 to 2020

[2] See also Special Drawing Rights One Year Later, By the Numbers, August 2022.

[3] See IMF here.

[4] The Case for More Special Drawing Rights: Rechanneling Is No Substitute for a New Allocation, October 2022.

[5] See figure: SDR Holdings for Member Countries with Sanctioned Central Banks or Unrecognized Governments, August 2021 and July 2022: in Special Drawing Rights One Year Later, By the Numbers, August 2022.

[6] Why Is the IMF Collecting Surcharges from Developing Countries?, The Hill, October For more detail, see IMF Surcharges: Counterproductive and Unfair, CEPR, September 2021; and A Guide to IMF surcharges, Eurodad, December 2021.

The post The International Monetary Fund’s Special Drawing Rights: Why a New Issuance is Necessary and Feasible at this Time, and Would Save Many Lives appeared first on Center for Economic and Policy Research.

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