31 July 2021

Of Course, the Venture Capitalists Love This

Corey Doctorow points to a study that shows, even by the corrupt standards of Robert Bork, surge pricing is a violation of antitrust law.

This is not surprising, neither is the support of this activity by the movers and shakers in finance and tech, who see law-breaking as "Disruption", and lionize those who do do it.  (I'd really like to see VC firms who knowingly fund law-breakers sued under RICO)

Surge pricing is an abuse of market power (my definition of a harm under antitrust regulations), and a harm to consumers (Little Bobby Bork's standard), so there is no reason not to go after these folks:

If you've paid any attention to the resurgent debate over antitrust, you've likely met the "consumer welfare standard," which is the cornerstone of post-Reagan monopoly law, and which is widely (and correctly) blamed for our new gilded age of vast, unaccountable monopolies.

In the years between the New Deal and the Reagan revolution, the cornerstone of antitrust enforcement was the idea that monopolies are just bad – bad for a clean political process free from excessive corporate corruption.

The watchword of this kind of antitrust is "harmful dominance" – the idea that monopolies hurt workers, suppliers, bystanders, customers, and the legitimacy of the democratic system itself.


"Consumer welfare" was supposed to replace the squishy, qualitative world of "harmful dominance" with an empirical, quantitative standard for when monopolies would face justice. That standard? Higher prices.


In practice, this is a nothingburger. Proving consumer welfare harms requires the creation and interpretation of complex mathematical models, and the highest bidder can always hire the most convincing mathematicians to prove that price rises can't be attributed to monopolies.


That's not how it works in practice. "The Efficient Queue and the Case Against Dynamic Pricing," a 2020 paper in the Iowa Law Review by U KY law/econ scholar Ramsi A Woodcock documents a widespread consumer welfare harm that's hiding in plain sight.


That harm? Surge pricing.

Woodcock argues that surge pricing is a pure transfer from consumers to producers – that is, a way to use market power to raise prices without any consumer benefit. He says we should ban it.

Woodcock's paper starts with the fact that shortages occur. The demand for a hot Christmas toy, or a spring break plane ticket, or a seat at Hamilton, or a ride on Space Mountain outstrips the supply. When that happens, some people aren't going to get what they want.

Merchants have two main tactics for deciding whom to disappoint: They can run an auction (surge pricing), or they can establish a queue.

Economists have historically hated queues. Camping out for a week to get a Tickle Me Elmo is considered wildly unproductive.

But the information age has given rise to a new kind of queue – the virtual queue, where you add your name to a waiting list or click a link at an appointed hour and see if you got the item or not.

Virtual queues eliminate the inefficiencies of physical queues, and they do so without raising prices – the one thing that antitrust law is supposed to ban.


Woodcock dismisses arguments that these excessive profits serve a market function by incentivizing others to enter the market. Not only are surges often too brief to provide this incentive, but actual surge pricing exceeds the price needed to bring new sellers to market.

For example, Uber's surge pricing has been documented to substantially exceed the price at which more drivers turn on their apps. Uber uses surge pricing as a pretence for price-gouging – as a transfer from riders to the company.

Woodcock's case for prohibiting surge pricing is bolstered by the "administratability" of such a prohibition. Courts have shied away from intervening in pricing because it's hard to set policies and monitor compliance.

A blanket ban on surge pricing, by contrast, is trivial to enforce, especially in the digital marketplaces where it is most widely practiced: Amazon, Disney World, airlines, Uber, etc.


Take Ticketmaster, an ugly, criminal monopoly that has grown to dominate ticketing and venues, thanks in large part to vast sums it laundered for the Saudi Royal family:


Ticketmaster operates its own reseller marketplace, an entire shadow industry for tickets in which they collude with scumbags to ensure that no tickets go to fans at face value. Instead, they're sold to profiteers, who list them on Ticketmaster's exchange at inflated prices.

Ticketmaster pockets a commission on each one of these sales – without giving a dime to the performers whose labor they depend on.


Ticketmaster's vertical dominance of the performance industry allows it to get away with this system of wage-theft and price gouging – it's harmful dominance that leads to consumer welfare harms.

In addition to meaningful regulation at the bureaucratic level,  I would suggest criminal prosecutions.

There are criminal provisions of antitrust law, which include jail time, that have not been used frequently in years, and it would be a good thing to dust them off and strike some terror into the malignant malefactors of monopoly.


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