From the Digital to the Physical: Federal Limitations on Regulating Online Marketplaces with Abbey Stemler

Edelman, Benjamin, and Abbey Stemler. “From the Digital to the Physical: Federal Limitations on Regulating Online Marketplaces.” Harvard Journal on Legislation, Volume 56, Number 1, pp. 141-198.

Abstract:

Online marketplaces have transformed how we shop, travel, and interact with the world. Yet, their unique innovations also present a panoply of challenges for communities and states. Surprisingly, federal laws are chief among those challenges despite the fact that online marketplaces facilitate transactions traditionally regulated at the local level. In this paper, we survey the federal laws that frame the situation, especially §230 of the Communications Decency Act (CDA), a 1996 law largely meant to protect online platforms from defamation lawsuits. The CDA has been stretched beyond recognition to prevent all manner of prudent regulation. We offer specific suggestions to correct this misinterpretation to assure that state and local governments can appropriately respond to the digital activities that impact physical realities.

Informal introduction:

Perhaps the most beloved twenty-six words in tech law, §230 of the Communications Decency Act of 1996 has been heralded as a “masterpiece” and the “law that gave us the modern Internet.” It was originally designed to protect online companies from defamation claims for third-party speech (think message boards and AOL chat rooms), but over the years §230 has been used to protect online firms from all kinds of regulation—including civil rights and consumer protection laws. As a result, it is now the first line of defense for online marketplaces seeking to avoid state and local regulation.

In our new working paper, Abbey Stemler and I challenge existing interpretations of §230 and highlight how it and other federal laws interfere with state and local government’s ability to regulate online marketplaces—particularly those that dramatically shape our physical realties, such as Uber and Airbnb. §230 is sacred to many, but as Congress considers revising §230 and Courts continually reassess its interpretation, we hope our paper will encourage a richer discussion about the duties of online marketplaces.

The Market Design and Policy of Online Review Platforms

Edelman, Benjamin. “The Market Design and Policy of Online Review Platforms.” Oxford Review of Economic Policy 33, no. 4 (Winter 2017): 635-649.

I present the institutions and incentives of online reviews, including attracting initial reviews, assuring truthful reviews of genuine experiences, and avoiding inflated or deceptive reviews. I also explore the competition and consumer protection concerns associated with reviews.

Impact of OTA Bias and Consolidation on Consumers

Online travel agencies (“OTAs,” such as Expedia and Priceline) charge hotels fees that can reach 25% or even more. In today’s post, I assess the causes of these fees as well as the tactics OTAs have used to punish hotels that object — penalizing hotels that discount through other channels, while simultaneously boosting those that agree to pay more. With Expedia and Priceline (including the many other companies they have acquired) jointly controlling 95% of the OTA market, competitive forces impose limited discipline on OTA practices.

My bottom line: OTA practices drive up costs to both hotels and consumers. At the very least, OTAs need improved disclosure of both bias and advertising. Meanwhile, it’s hard to defend OTAs’ efforts to punish hotels that sought cheaper distribution elsewhere. The time is right for the FTC and state attorneys general to examine this market.

My full article:

Impact of OTA Bias and Consolidation on Consumers

Uber Can’t Be Fixed — It’s Time for Regulators to Shut It Down

Edelman, Benjamin G. “Uber Can’t Be Fixed — It’s Time for Regulators to Shut It Down.” Harvard Business Review (digital) (June 21, 2017). (Translations: Japanese, Russian.)

From many passengers’ perspective, Uber is a godsend — lower fares than taxis, clean vehicles, courteous drivers, easy electronic payments. Yet the company’s mounting scandals reveal something seriously amiss, culminating in last week’s stern report from former U.S. Attorney General Eric Holder.

Some people attribute the company’s missteps to the personal failings of founder-CEO Travis Kalanick. These have certainly contributed to the company’s problems, and his resignation is probably appropriate. Kalanick and other top executives signal by example what is and is not acceptable behavior, and they are clearly responsible for the company’s ethically and legally questionable decisions and practices.

But I suggest that the problem at Uber goes beyond a culture created by toxic leadership. The company’s cultural dysfunction, it seems to me, stems from the very nature of the company’s competitive advantage: Uber’s business model is predicated on lawbreaking. And having grown through intentional illegality, Uber can’t easily pivot toward following the rules.

Passenger Right to Record at Airports and on Airplanes? with Mike Borsetti

Passengers have every reason to record airline staff and onboard events–documenting onboard disputes (such as whether a passenger is in fact disruptive or a service animal disobedient), service deficiencies (perhaps a broken seat or inoperational screen), and controversial remarks from airline personnel (like statements of supposed rules, which not match actual contract provisions). For the largest five US airlines, no contract provision–general tariff, conditions of carriage, or fare rules–prohibits such recordings. Yet airline staff widely tell passengers that they may not record–citing “policies” passengers couldn’t reasonably know and certainly didn’t agree to in the usual contract sense. (For example, United’s policy is a web page not mentioned in the online purchase process. American puts its anti-recording policy in its inflight magazine, where passengers only learn it once onboard.) If passengers refuse to comply, airline staff have threatened all manner of sanctions including denial of transport and arrest. In one incident in July 2016, a Delta gate agent even assaulted a 12-year-old passenger who was recording her remarks.

In a Petition for Rulemaking filed this week with the US Department of Transportation, Mike Borsetti and I ask DOT to affirm that passengers have the right to record what they lawfully see and hear on and around aircraft. We explain why such recordings are in the public interest, and we present the troubling experiences of passengers who have tried to record but have been punished for doing so. We conclude with specific proposed provisions to protect passenger rights.

One need not look far to see the impact of passenger recordings. United recently summoned security officers who assaulted passenger David Dao, who had done nothing worse than peacefully remain in the seat he had paid for.  The officers falsely claimed that Dao was “swinging his arms up and down with a closed fist,” then “started flailing and fighting” as he was removed.  United CEO Oscar Munoz’s falsely claimed that Dao was “disruptive and belligerent”.  Fortunately, five passenger recordings provided the crucial proof to rebut those claims.  Dao and the interested public are fortunate that video disproved these allegations. But imagine if United had demanded that other passengers onboard turn off their cameras before security officers boarded, or delete their recordings afterward and prove that they had done so — consistent with passenger experiences we report in our Petition for Rulemaking. Had United made such demands, the officers’ false allegations would have gone unchallenged and justice would not have been done. Hence our insistence that recordings are proper even–indeed, especially–without the permission of the airline staff, security officers, and others who are recorded.

Our filing:

Petition for Rulemaking: Passenger Right to Record

DOT docket with public comment submission form

Enumerating Uber’s Scandals

Collecting my thoughts for an article about Uber’s mounting scandals and the proper legal and regulatory response, I took some time to review the range of recent concerns. It’s overwhelming — new issues arising daily, and prior problems almost inevitably forgotten. But by dividing the misdeeds into a taxonomy of subject areas, I’m seeing trends — identifying the areas where Uber falls furthest short. I offer my notes to others in hopes that they can help.

My tabulation:

Uber Scandals

David Dao on United Airlines (teaching materials)

Edelman, Benjamin, and Jenny Sanford. “David Dao on United Airlines.” Harvard Business School Case 917-026, May 2017. (educator access at HBP. request a courtesy copy.)

In widely circulated videos, United staff and Chicago security forcibly remove a passenger from his paid seat on an aircraft, injuring him severely. United leadership must decide how to respond to public outcry.

Teaching Materials:

David Dao on United Airlines – Teaching Note (HBP 917027)

Racial Discrimination in the Sharing Economy: Evidence from a Field Experiment

Edelman, Benjamin, Michael Luca, and Daniel Svirsky. “Racial Discrimination in the Sharing Economy: Evidence from a Field Experiment.” American Economic Journal: Applied Economics 9, no. 2 (April 2017): 1-22.

In an experiment on Airbnb, we find that applications from guests with distinctively African-American names are 16% less likely to be accepted relative to identical guests with distinctively White names. Discrimination occurs among landlords of all sizes, including small landlords sharing the property and larger landlords with multiple properties. It is most pronounced among hosts who have never had an African-American guest, suggesting only a subset of hosts discriminate. While rental markets have achieved significant reductions in discrimination in recent decades, our results suggest that Airbnb’s current design choices facilitate discrimination and raise the possibility of erasing some of these civil rights gains.