How Food Delivery Killed Competition (And Took Your Budget With It) | Diving In

The fact that I can open up my phone, just
push a couple of buttons, and thirty minutes later have
restaurant quality food show up on my doorstep. It's pretty incredible, seriously,
the magic of our times. But it's also gotten painfully expensive.
That twenty eight dollar burrito isn't just a meme, it's
a reality. And so I want to ask, does it
really have to be this way? I mean, Amazon can
get almost anything in my house cheaply and quickly, but
that burrito, it's priced as if they're sending it here
in a Rolls Royce. So today I want to ask,
why is food delivery so damn expensive? I mean, sure,
it looks like a competitive market. There's lots of businesses
competing and they're all selling pretty much the same product.
Wouldn't economics tell us that competition drives prices down. But
this mark, it's not delivering the one thing that I
really want, which is low prices. So here's the big idea.
The whole point of competition. It's that you should be
able to easily compare prices and find the best deal.
But when it comes to food delivery, that's weirdly hard
to do. First of all the prices on the app,
they usually a whole lot higher than the price at
the restaurant, and they don't even tell you what the
markup is. That's a hidden fee right there. On top
of the hidden markup. They add in other fees which
come in different shapes and different sizes, and they vary
across platform. And honestly, those fees seem to vary by
the time of day, the order size, whether I have
a subscription, and whatever strange mood the algorithm woke up
in that morning. And perhaps the worst bit these fees,
you can't even see what they are until you get
to the very last screen. By that point, you're dreaming
of burritos or pizza or sushi. This is a story
about what happens when you have plenty of competitors, but
not much competition, because price comparison is painful. This is
going to be a story in five chapters. First, we'll
follow the money and we'll see what it takes to
compare one ordinary family dinner, my family's dinner, across three
of the biggest food delivery apps. Second, we'll explore why
these hassles matter and how these small frictions can add
up to very big inefficiencies. Third, I want to make
the case that this is not an accident of bad design.
It's an intentional strategy used by Uber Eats and door
dash and grub hub to boost their bottom line at
the expense of your back pocket. Fourth, I always like
to talk about solutions, and so I want us to
figure out what we can do about all of this,
how regulators might be able to finally fix this once
they eventually get around to figuring out the scam. Fifth
is the dessert course, you might think, and most of
the time we're going to talk as if this is
a video about food delivery, but really it's a metaphor
for a much larger story about capitalism, markets and how
economies can go right and wrong. Okay, let's begin competition.
It's the magical force that leads markets to deliver better
outcomes for consumers. One shop charges five bucks for a
coca and a candy bar, and another charger seven. You
end up going with the cheaper one. You, therefore are
going to provide a really sharp in setting for the
suppliers to keep their prices down and the quality of
their goods high. That is the magic of competition. As
suppliers try to win your business. They're going to each
try to outdo each other by offering a better deal. Hey,
that's how it works in theory, and at least that's
how it works in the sort of theory when I
teach economics one oh one. But in reality, I'm still
waiting for a food delivery company to offer me even
a halfway good deal. What's going on here is competition
and stumbles over one small problem. The price of that
delivered burrito. It's really hard to find. What you can
find is the price next to the burrito on the menu.
But that's not what you care about. What you care
about is the bottom line on actually getting that burrito delivered.
That's the price you care about. But to get there,
you're going have to log in, click all the way through,
search through different bits of long menus to find your favorites,
into your address, tell them whether to knock on the
door or ring the bell. Then enter your email and
a password, and it's definitely going to be a password
you've forgotten was it one exclamation point or two at
the end, And finally you've got to do twelve jumping Jackson.
Then they agree to show you the price and deliver
your burrito, which means if you want to compare prices,
you've got to do all of that all over again
on multiple apps, rebuilding the same cut over and over
with the same items that are somehow rearranged on every platform.
So yes, technically you can compare prices, but only if
you're willing to do what feels like hours of unpaid
clerical work. Before dinner, I wanted to make this more concrete,
so I took one ordinary family sushi order with five
pretty basic rolls, and I tried to figure out what
the price was in four different ways. I checked out
the restaurant's website, I went onto uber eat, so I
went onto door Dash, and then I went over to
grub hub as well. I remembered that what matters here
is not the different subtotals that were offered the bottom lines.
But along the way I noticed a few things, the
differences across these apps. It wasn't just one price that
was different. The difference has showed up in lots of
different ways, and that made wonder one comparison really difficult. So,
for instance, on the three different apps, the rolls were
about twenty percent more expensive than they were on the
restaurant's website, but there was a couple of exceptions, but
I couldn't figure out what drove those, and I honestly
don't know if they're typos. On grub Hub, the delivery fee,
the service fee, and tax are all displayed separately, while
on Uber Eats and door Dash, service fees and taxes
were combined, but then you could click them to get
more info For the tip. Uber reads and grub Hub
defaulted to a pretty generous twenty percent. Well, door Dash
suggested a flat six dollars. Now, then you've got to
think about promos and large order discounts and optional subscriptions.
You might have to which of these services that mutters
the water even further. So when I was trying to
find the best price, I ended up getting three different
answers depending on whether I was looking at the subtital,
the advertised delivery fee, or the bottom line. And that
was only shown on the very last page. And that's
a really important point for that might be the cracks
of the matter. Getting to the point where the prices
were genuinely comparable took time, a lot of time across
these three apps, plus the restaurant site. I lost half
an hour of my life. Hey, if I could earn
thirty bucks an hour driving an uber, then a half
hour of my price comparisons cost me fifteen dollars in
lost earnings. Perhaps I would have saved ten bucks. But
if I spend fifteen dollars to save ten, it's just
not worth it. So if competition's working properly, the price
of that family meals should be a straightforward process. In fact,
they've made it so the comparison shopping loses your money.
In economics, there's a fancy phrase we use to describe
what's going on here. We call it search costs. Search
costs are all the time attention and effort it takes
to compare what's something really costs and whether there's a
better alternative. And search costs matter because competition is not
just magic. It doesn't work merely because different firms exist
in a market. It works because consumers like you and
I can easily compare offers. And whereas we do that,
we end up punishing the expensive sellers by withholding our
business from them. But if comparison shopping becomes annoying or
slow or taxing, then fewer people do it, and when
the kids are hungry and everyone's naked, even fewer of
us do it, And as a result, the expensive sellers
not only persist, but they thrive. When fewer people search
for low prices, businesses feel less pressure to compete on
the true price, and therefore the true price does get
pushed down. It's not quite the absence of competition, but
it's a weaker, murkier version of it that ends up
explaining that twenty eight dollar burrito. Now you might think
these search costs are just really sloppy app design. You know,
there's a few messy interfaces, a few odd pricing choices.
But I don't think that's what's going on. I think
there's something a bit more structural here, Like do you
really believe it's just a coincidence that grub hub and
uber eats managed to get the worst app designers on earth? Obviously,
not think about it. These should be the easiest prices
to compare. These prices, they're digital, they're data. You're looking
at them on your computer. Computers know how to compare numbers.
It ought to be super easy to compare these numbers
that are floating out there in the Internet. Ether, but
the companies make it hard. In fact, they have very
skilled programmers making it more difficult for you. In fact,
you can see it directly Uber's terms of service so
that users may not aggregate Ubers data, that it's competitors data,
or use it in ways that support competitive price comparison. Similarly,
the terms for door Dash and grub hub. They prohibit
the scraping and systematic retrieval of its data, and grubhub
also forbids the creation of database bases from its platform
content which to say it's prices without asking them for authorization. Now, look,
you might say, in most businesses, this is fine. We
normally allow firms to just write their own terms of service.
But here they're writing their terms of service explicitly to
destroy your ability to comparison shop and therefore the forces
of competition. The tools that would make price comparison easier
for you and I, at one level, they're really simple.
If you have a shopped for airline tickets, you can
compare prices really easily. But in this case, the food
delivery companies have made them almost impossible to build. Honestly,
I tried, I spent an hour or to actually just
trying to write some code to scrape the data from
the different websites, and it was formatted in such odd
ways I couldn't figure it out. The only conclusion I
came to is their bad design is there by design,
they're trying to stop us comparison shopping. So what can
we do about it? Well, let me sound optimistic for
a moment. Regulators are starting to notice. I mean, I
noticed the twenty eight dollar Baruto years ago, so I
don't know what took them so long. But back in
December of twenty four, the Federal Trade Commission settled a
case with grub Hub over allegations that grub hub hid
the true cost of delivery and used what the FTC
described as a pricing shell game that's pretty harsh. Grub
Hub was ultimately forced to pay twenty five million dollars
to make several changes to the way it does business,
and this past April, the FTC opened a broader inkiry
into unfair and deceptive fee practices for online food and
grocery delivery. Basically, the regulators are asking do consumers actually
know what they're paying and why? Which seems like a
pretty fair set of questions. So the point here is
this is not just a story of one grumpy economists
getting annoyed with ordering his family sushi dinner. It's increasingly
a policy story about whether a market counts as competitive
if consumers can't easily see what the real price is,
So how might we fix this? Look, here's just a
few ideas about where to start. First, show the full
mandatory price earlier upfront, as soon as possible, not halfway
through the checkout, not after I've emotionally committed to the
spicy tuna. That's not price comparison, that's manipulation. Second, if
the app price is high in the restaurant's own price,
tell me clearly right there on the item. Third, standardize
the fees. If there are service and delivery fees, explain
what they are, whether they're mandatory, and who gets it.
Here's the frustrating thing. Every time I go, it appears
that the fees on grub hub have changed since last time,
and so of the fees on uber Eats, and as
a result, I have no indication of which is most
likely to be cheaper this time. These fees should follow
clear and simple rules that are consistent across orders and
customers in order to facilitate comparison shopping. Fourth, and this
is the bigger institutional point, don't make it impossible for
independent comparison tools to exist. It shouldn't be legal to
suppress competition and price comparison. Your price should be something
that you're proud of. Look, it's easy for some bright
spark to write nap that brings up the menu for
your favorite sushi restaurant, to show you the prices on
each of the main delivery sites. Well, it should be easy,
but at the moment the business is involved are actively
discouraging this. And that's the tell you see. If these
businesses actually believe they are offering the best deal, they
should welcome easy comparison, not fear it. A genuinely competitive
market should not require detective work from the customer. Look,
I get it for delivery is a real service. Delivery
does cost money. Convenience is worth something. Heck, I'm prepared
to pay for it. I'm not saying that my dinner
should just arrive on the wings of fairies. But if
you're offering convenience and you're charging for convenience, I'm saying
you should at least be honest about the price of
that convenience, okay, on a dessert I promise to are
actually talking about bigger themes here, And here's the big takeaway. Competition.
It's not just about where there's lots of businesses in
a market, or where there's lots of colorful apps on
your phone. And it's not about whether they're all selling
a similar or a different product and whether they're advertising.
It's about whether the market is structured in a way
so that ordinary people can make sensible choices. That means
offering clear enough prices that a busy family can actually
tell who's offering the better deal. And here's the point
I really want to broaden too. There's a much broader
story here that goes well beyond the twenty eight dollar barrito.
From your perspective as a consumer. From your perspective, competition,
competition is beautiful. Competition is what forces firms to compete
until each try to offer a better deal than the other.
But from the side of businesses, there so competition destroys
their pricing power. They might have to start selling burritos
at reasonable prices, their profit margins might fall. And so
even though competition is what makes markets work for you,
businesses fight to reduce or eliminate competition. In the food
delivery industry, they do this by making it hard to
compare prices. In other industries, they use other tricks, but
they're always looking to reduce the competition that benefits you.
And that's the inherent tension at the heart of capitalism.
It's a system that delivers extraordinary outcomes. It delivers extraordinary
outcomes because of competition, but the competitors are actually always
trying to destroy competition, and so capitalism can only work
if there are clear rules to keep competition truly competitive.
Step back and you'll see that there's a lot of
people who use the rhetoric of economics to say that
our policies ought to be pro business, that we should
get the government off the back of businesses. But if
we let businesses do what they want, they'll work to
destroy competition. The point here is that there's a much
dronk the case from being pro market or pro competition
than being pro business. So next time you tuck into
a burrito, I want you to realize that you're holding
a foot long lesson in economics that lesson competition is
your best chance at getting a good deal.