Dive Brief:
- California’s attorney general sued Amazon alleging the company broke state competition laws. Specifically, the suit claims that Amazon keeps prices artificially high via practices barring wholesalers and third-party merchants from offering lower prices to other retailers.
- “Amazon makes consumers think they are getting the lowest prices possible, when in fact, they cannot get the low prices that would prevail in a freely competitive market because Amazon has coerced and induced its third-party sellers and wholesale suppliers to enter into anticompetitive agreements on price,” the complaint alleges.
- In a statement posted online, Amazon responded by saying the lawsuit, were it to be successful, would harm consumers and its sellers.
Dive Insight:
Since Amazon opened its website to third-party sellers two decades ago, Marketplace sales have become a critical and lucrative revenue source in its e-commerce arm. And Amazon has become, by leaps and bounds, the largest and most important channel for third-party sellers online.
The lawsuit filed by California Attorney General Rob Bonta alleges that Amazon has used this market power to control pricing not just on its own site but across the market through its contracting practices with merchants and wholesalers.
“In these anticompetitive agreements, Amazon’s third-party sellers and wholesale suppliers agree not to offer, and to prevent Amazon’s competitors from offering, lower prices elsewhere — including Walmart.com, Target.com, eBay, their own websites, and other online stores — and incur steep penalties if these other online stores have lower prices,” the complaint states.
It goes on to allege that “[c]ompeting sites do not offer lower prices the way they would in a competitive market, not because Amazon competed successfully, not because Amazon is a more efficient retailer and marketplace, but because Amazon forbids it by contract.”
The pricing policy, according to the lawsuit, was explicit from 2012 to 2019 in Amazon’s “Pricing Parity Provision” in its agreement with Amazon Marketplace sellers. After the policy came under scrutiny in Congress, Amazon nixed the language.
But California’s lawsuit alleges that Amazon still “strictly enforces a de facto retail price parity agreement by imposing escalating penalties on sellers that fail to comply with price parity, until they do comply.”
Those penalties, according to the complaint, include disqualifying sellers from winning its “Buy Box” — coveted real estate on Amazon’s site that directs customers directly to purchase — as well as demoting their place in organic search and blocking them from creating new offers.
California joins Washington, D.C. in launching a legal challenge against Amazon over its pricing practices with third parties. D.C. Attorney General Karl Raccine sued Amazon last year over price fixing allegations, pointing to the same conduct. A judge dismissed the district’s lawsuit this year, which Raccine has appealed.
This year, Washington state shut down the company’s “Sold by Amazon" seller program over alleged price fixing.
The company has been under growing scrutiny over competitive practices for some years, including at the federal level. The House of Representatives in 2020 issued a scathing report on big tech companies that included accusations that Amazon abused its market power of third-party sellers. One of the attorneys in that investigation now heads the Federal Trade Commission, which reportedly has investigated numerous aspects of Amazon’s business.
Amazon said of California’s lawsuit that the attorney general “fundamentally misunderstands the retail industry and misconstrues Amazon’s practices.” The company added that sellers set their prices and it “makes no effort to prevent them from offering lower prices elsewhere.”
In its statement, Amazon did acknowledge that it does not “highlight” seller offerings on its website at prices that are “uncompetitive” compared to other retailers.
