Amazon raises prices across retail, California says

In 2019, Shaul Sussman, then a lawyer at the Institute for Local Self-Reliance and now an adviser to the Federal Trade Commission (FTC), wrote an article for the Perspective on how Amazon imposes control on third-party sellers and its impact on consumers. It was an ingenious way of looking at a lawsuit against Amazon in the current terms of antitrust jurisprudence, based on the so-called “consumer welfare” standard.

This standard asserts that anti-competitive behavior only exists if there is harm to consumer welfare, which many lawyers equate with consumer pricing. But Amazon requires its third-party sellers to sell on Amazon at the lowest price compared to other online outlets. It used to be an explicit price parity agreement until early 2019, when Amazon removed the clause from its contracts over fears the FTC would launch an investigation. But sellers have always said price parity is still enforced through Amazon’s “Fair Pricing Policy.” Sellers who list cheaper prices elsewhere on the internet allege they are being denied the “buy box” where most purchases are made.

While Amazon’s practices ensure the the lowest possible price, how could Amazon ever be the victim of an antitrust violation? The answer, Sussman explained, is that sellers could offer their products at other online outlets for less — they just don’t for fear of being penalized by Amazon.

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Now, a typical small business might not have that effect, but Amazon is different. Most sellers have no choice but to list products on Amazon, where most of the eyeballs are. In addition, the company demands a considerable reduction in sales from third-party sellers; 34 cents on every dollar in sales, starting in 2021, with more to come thanks to new fees the company has imposed for the holidays. So sellers need to keep their Amazon price high to stay ahead of its gripping fees, and its policy extends that price to other businesses.

In short, Amazon’s forced price matching is effectively breeding prices at other outlets. “It’s very hard to argue that the higher prices customers have to pay for the same products at outlets like Target are good for anyone but Amazon,” Sussman wrote. Other outlets don’t take as big a bite, meaning sellers could earn the same margin with lower prices. Amazon won’t let them do that, and we all suffer from the price hike. It also prevents sellers from improving products because their margins are squeezed so much by Amazon. This creates a barrier to investment and innovation, another detriment to consumer welfare.

This theory has now been put into practice by California Attorney General Rob Bonta. Last week, he sued Amazon in San Francisco Superior Court, arguing precisely what Sussman was: that Amazon’s policies preventing sellers from offering lower prices at other outlets violate the antitrust law. “Through its illegal actions, the quote-unquote ‘everything store’ has effectively set a floor price costing Californians more for just about everything,” Bonta said at a press conference.

A similar lawsuit was filed last year by DC Attorney General Karl Racine. This case was dismissed by the courts in March; he is currently on appeal. But a class action lawsuit with the same claims survived a motion to dismiss around the same time. Amazon has always insisted that its sellers set their own prices.

Amazon’s forced price match is effectively breeding prices at other outlets.

Bonta said the case involved evidence-gathering that dates back to 2012 and was subject to California law, which he said is favorable to his case. Xavier Becerra, the former California AG who is now health and human services secretary, originally opened this investigation in early 2020, about six months after Sussman’s story.

Clearly, Amazon gets a lot of heat for this particular price parity policy, because it’s the easiest to explain in a way that’s consistent with the consumer welfare theory of antitrust law. Amazon engages in many other practices that could harm workers, business partners, and innovation, but if the courts only care about consumers, that’s also justified. “Like arresting Capone for tax evasion, the need to pursue this strategy reveals the poverty of our other enforcement regimes,” as author Cory Doctorow says.

Amazon will retaliate with its usual boilerplate response: No one gets third-party sellers into the Amazon Marketplace, so if they don’t like the terms, they can go elsewhere. Of course, for decades Amazon has diligently structured the e-commerce marketplace so that sellers can not go away. That’s the whole business model, actually.

Amazon knows its market has grown to such fundamental importance that it can throw its weight behind it by threatening to remove it from entire countries if they attempt to regulate fair use for the company. Amazon has just done it in Canada, according to a recording revealed by the site The Logic.

“If Canada were to pass American-style antitrust legislation…we said it in the United States, we would have to shut down Marketplace. You would see similar action in Canada in response to similar policy action,” Amazon’s director of public policy for Canada said during a 2021 meeting. Perspective confirmed last October that this was the message to US third-party sellers, in response to bills like the American Innovation and Choice Online Act (AICOA), which are still awaiting a vote in the Senate.

I tend to think that this threat is rather futile. If Amazon abandoned its third-party marketplace, all it would have to sell would be its Basics line of in-house products. Then, because the whole point of a membership is that Amazon carries everything, a large chunk of its Prime subscribers would likely cancel.

Indeed, Amazon has internally discussed Formwork Basics as an olive branch for regulators who are concerned that Amazon uses data collected from third-party sellers to inform internal products it creates. That seems more plausible, not least because Amazon makes a ton of money from third-party sellers, without having to develop or release products — another reason it’s reportedly reluctant to shut down its marketplace. It charges such a premium for shipping, logistics, and customer service that it earns far more from third-party sellers than it does from its own products.

However, a small country like Canada without the purchasing power of the United States risks being isolated. This cruelty is how Amazon carved its way to dominance. It treats national governments the same way it treats third-party sellers: using intimidation and threats to get what it wants. Whether or not he crossed the legal line in doing this is for the courts to decide. But it seems law enforcement is confident that at least someone will get a handle on Amazon’s plans to control sellers, customers, prices and everything else.

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