Key Points

• In this Research Alert, Fideres examines the anti-competitive effects of DoorDash’s de facto Most Favored Nation (MFN) clauses.
• DoorDash has achieved a dominant position in the U.S. meal delivery market, holding a 67% market share as of 2023.
• Instead of directly applying No Price Competition Clauses (NPCC), which prohibit restaurants from offering lower prices to consumers who order directly from them, DoorDash penalizes restaurants for discounting their offerings outside of the platform.
• These de facto NPCC clauses, implemented through DoorDash’s restaurant ranking algorithm, limit the ability of restaurants to offer lower prices to dine-in customers or on competing platforms, harming both consumers and restaurants.
• Fideres examines how dine-in customers who have eaten at restaurants that are listed on DoorDash in the U.S might have been overcharged as a result of such behavior.

Background

After a long day, many Americans turn to an online food delivery app to order dinner, with DoorDash—a platform controlling over 67% of the U.S. market—often being the app of choice.¹ As users browse for restaurants, they are naturally drawn to those with higher rankings and the “Most Loved” label.² However, these consumer-steering features are linked to DoorDash’s de facto NPCC, which effectively shapes pricing strategies across the restaurant industry.

Source: Bloomberg Second Measure³

With DoorDash’s commission fees ranging from 15% to 30%,⁴ many restaurants are forced to raise their prices to avoid incurring a loss. The platform’s algorithm penalizes restaurants that list menu prices on DoorDash higher than their in-store prices, effectively pushing restaurants to keep prices consistent across channels.⁵

This policy may appear to protect consumers from price hikes, but the reality is more complex. To maintain visibility on DoorDash, restaurants are compelled to align their DoorDash menu prices with in-store pricing, often resulting in supra-competitive prices.

Restaurants normally would not match their original in-store prices to DoorDash menu prices, since they would make a loss after accounting for the high commission fees.⁶ As a result, the only viable way to maintain parity between DoorDash menu and in-store prices is to raise in-store prices, ensuring takeaway orders remain profitable. This de facto NPCC harms all consumers who use restaurants listed on food delivery platforms, whether they dine-in or order food for delivery. These consumers face elevated prices as a consequence.

Classical Most Favored Nation Clauses

Imposing MFN clauses is common in the food delivery market. Grubhub and Uber Eats adopt a wide MFN clause, which stops restaurants from offering lower prices elsewhere, including to their dine-in customers.⁷

This mechanism ensures the price listing on their platform is the lowest among all sales channels, regardless of the commission fee they impose to the restaurants. Without the pressure to compete horizontally, platforms can charge supra-competitive commissions without worrying about losing business to more efficient rivals with lower commission fees. These clauses stifle competition on fees and deter new platforms from entering the market with better rates, since restaurants cannot pass those savings on to customers.

In the absence of MFN clauses, we would expect to see competition on commissions between platforms. Rival platforms would be incentivized to offer lower commissions, and monopoly platforms would have an incentive to cut their own commissions in order to match those offers and retain restaurants on their platforms. As a result, commissions across all restaurant platforms would fall and consumers would pay lower prices.

MFN clauses therefore create barriers to entry, discouraging competition from new or smaller players.⁸ This leads to increased marginal costs for restaurants and customers that use the platform, while imposing higher prices on those that do not use the platform.

DoorDash’s De Facto MFN Clauses

Instead of directly including the MFN clauses in the contracts signed with restaurants, DoorDash is imposing de facto MFN clauses tied to restaurant ranking on the platform. DoorDash does this in the following ways:

• Restaurant Ranking: DoorDash gives priority ranking in its app to restaurants that list their menu items on DoorDash at the same price as their dine-in menu.
• Menu Price Labels: it uses labels – such as “Menu Matches In-Store Prices: Get the same prices you would in-store on DoorDash” – to identify when a restaurant matches prices on the DoorDash app with those on its dine-in menu.⁹
• Most Loved Labels: Price parity is a condition to qualify for Most Loved, a category of restaurants that are more visible on the platform.¹⁰

DoorDash explicitly states on their merchant support webpage that marking up menu prices on DoorDash can result in “up to 37% fewer sales and up to 78% lower reorder rates.”¹¹ With these preferential algorithm measures, although not compulsory, restaurants are effectively induced to match their DoorDash menu prices to their dine-in prices. Otherwise, they risk gaining very little visibility on the platform.

Through this price-matching mechanism, DoorDash has monopolized the meal delivery market by imposing de facto MFN clauses tied to restaurant ranking on the platform.

Why Are Dine-in Consumers Harmed?

DoorDash charges restaurants a commission fee based on the selected plan, ranging from 15% for the Basic Plan, 25% for the Plus Plan, and 30% for the Premier Plan.¹² The Plus and Premier Plans include access to DashPass, which offers customers free delivery through their subscription. Additionally, the Premier Plan comes with a Growth Guarantee, promising higher visibility and more bookings for the restaurant.

Restaurants typically incur three major expenses: food (28-32%), labor (28-32%), and rent (22-29%). This means that operating costs generally fall between 78% and 93%, leaving a profit margin of only 7% to 22%.¹³ With the added commission fees charged by food delivery platforms, restaurants face additional costs to serve their customers. Given commission rates ranging from 15% to 30%, restaurants are often forced to raise their menu prices in order to avoid operating at a loss.

However, because of the de facto MFN clauses imposed by DoorDash, restaurants will simultaneously increase their in-store prices to ensure visibility on the platform, causing dine-in consumers to pay higher prices. Given the widespread use of MFN clauses—both implicit and explicit—by DoorDash and other platforms, most restaurants face similar pressures. As a result, inter-restaurant competition is unlikely to constrain the upward pressure on prices.

In theory, restaurants could threaten to delist from a platform to avoid the impact of MFN clauses, which would likely reduce the anti-competitive effect. In practice, however, this is often an irrational choice, as delisting would lead to a substantial loss in sales. Without MFN clauses constraining pricing, restaurants could freely set lower prices for dine-in customers, who would therefore benefit from more competitive prices.

Conclusion

DoorDash’s de facto MFN clauses pressure restaurants to set higher prices for both delivery and dine-in services to offset the 15-30% commission fees, creating a spillover effect that impacts all parties in the market, including those not using the delivery service. If restaurants had the freedom to offer lower prices outside of DoorDash, these additional costs could be significantly reduced, benefiting both consumers and the restaurant industry as a whole.

Sales from full-service restaurants in the U.S. are estimated at USD 513 billion in 2023, up from USD 470 billion in 2022.¹⁴ Even isolating the 30% attributable to dine-in customers,¹⁵ and adjusting for restaurants listed on a food-delivery platform and customers who are not DoorDash users,¹⁶ the economic impact remains substantial. A potential class action on behalf of dine-in consumers would therefore be economically viable, aiming to address the higher prices driven by DoorDash’s de facto MFN clauses and restore fair competition in the food delivery market.

¹https://www.businessofapps.com/data/food-delivery-app-market/

²https://get.doordash.com/en-us/about/most-loved

³https://secondmeasure.com/datapoints/food-delivery-services-grubhub-uber-eats-doordash-postmates/

⁴ https://get.doordash.com/en-us/products/marketplace

⁵ https://www.restaurantbusinessonline.com/technology/doordash-pushes-back-against-inflated-delivery-prices

⁶ For more detail, see Section 5 (“Why Are Dine-in Consumers are harmed?”)

⁷ Davitashvili et al. v. Grubhub Inc., Uber Technologies, Inc., and Postmates Inc., Amended Consolidated Class Action Complaint, August 31, 2020, No. 20-cv-03000 (S.D.N.Y.) (hereinafter, “US Consumer Complaint”).

⁸ Jonathan B. Baker and Judith A. Chevalier, “The Competitive Consequences of Most-Favored-Nation Provisions”, Antitrust, Vol. 27, No. 2, Spring 2013, available at https://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=2144&context=facsch_lawrev

⁹ https://www.restaurantbusinessonline.com/technology/doordash-pushes-back-against-inflated-delivery-prices

¹⁰ https://get.doordash.com/en-us/about/most-loved

¹¹ https://help.doordash.com/merchants/s/article/How-to-Maximize-Visibility-and-Order-Volume-on-DoorDash?language=en_US

¹² https://get.doordash.com/en-us/products/marketplace

¹³ https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/ordering-in-the-rapid-evolution-of-food-delivery

¹⁴ USDA, Economic Research Service, Nominal food and alcohol expenditures, with taxes and tips, for all purchasers. Available at https://www.ers.usda.gov/data-products/food-expenditure-series/

¹⁵ https://www.pymnts.com/restaurant-technology/2022/41-pct-of-restaurant-revenue-now-comes-through-digital-channels/

¹⁶ Consumers who have signed the DoorDash terms of service might be bound to the arbitration clauses even for their dine-in purchases. Given the successful arbitration challenge in the US Consumer Complaint, there is scope to include these customers’ dine-in purchases as part of the class.