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Amazon on California Antitrust Lawsuit: AG ‘Has it Exactly Backwards’

California lawmakers are hoping to accomplish what a prior antitrust case levied in the nation’s capital couldn’t, with the state Attorney General Rob Bonta suing Amazon on Wednesday on allegations it stifled price competition across retail.

Bonta said that an investigation by his office found that sellers who use Amazon’s online marketplace would lower their prices if not for agreements they had with Amazon.

Amazon’s fair pricing rules, known as “most-favored nation” agreements, require third-party merchants to make their prices on the marketplace the lowest they offer across any online alternative. In other words, vendors selling a product on Amazon can’t sell the same item at a lower price on Walmart, Target, Ebay or even their own website.

“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,” Bonta said in the complaint. “The intent and effect of these agreements is to insulate Amazon from price competition, entrenching Amazon’s dominance, preventing effective competition, and harming consumers and the California economy.”

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Washington D.C. Attorney General Karl A. Racine sued the tech titan last year on similar grounds, accusing the company of stifling retail competition through anticompetitive pricing agreements with third-party sellers on its platform that artificially raised prices and deprived consumers of choice. Racine later expanded the suit against Amazon, targeting the company’s similar pricing agreements with first-party sellers.

Amazon got the suit dismissed in March this year, with a D.C. Superior Court judge citing a lack of evidence to support the assertion that the e-commerce juggernaut inflated prices. The ruling is currently under appeal.

An Amazon spokesperson told Sourcing Journal that like Racine’s case, Bonta “has it exactly backwards.”

“Sellers set their own prices for the products they offer in our store,” the spokesperson said. “Amazon takes pride in the fact that we offer low prices across the broadest selection, and like any store we reserve the right not to highlight offers to customers that are not priced competitively.  The relief the AG seeks would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law. We hope that the California court will reach the same conclusion as the D.C. court and dismiss this lawsuit promptly.”

Like the D.C. suit, the California complaint points to the pricing agreements for third-party sellers that sell on Amazon’s marketplace, as well as first-party wholesale suppliers that sell directly to Amazon.

Bonta alleges that Amazon coerces third-party sellers into agreeing not to offer their products at a lower price elsewhere.

In 2019, Amazon removed its “price parity provision,” which explicitly prohibited third-party sellers from offering their products on a competing online retail sales platform at a lower price. But the “Fair Pricing Policy” that replaced it has been heavily criticized by sellers and has become a sticking point in both the California and D.C. lawsuits, which suggest the newer policy is a nearly identical substitute.

Amazon still imposes penalties for vendors that break the pricing rules, which can range from disqualifying them from being included in the coveted “buy box” that maximizes product visibility and is designed to expedite the checkout process; demoting their offers to the bottom of Amazon’s organic search results; suspending their ability to ship products; and banning the seller’s account altogether.

The California lawsuit also targeted Amazon for being deliberately vague to its sellers about the policy and how it can impact their standing on the marketplace.

“As an example of its obfuscation, when Amazon sends a seller a notification, alerting the seller that its offer is ‘priced higher on Amazon than at other retailers,’ and accordingly has lost eligibility for the Buy Box, it does not disclose the identity of the ‘other retailers’ offering the lower price,” according to the complaint. “Sellers interpret these notices to mean that they have violated Amazon’s coerced price parity terms by pricing or causing their products to be priced lower off Amazon.”

Additionally, the suit points out that the fees to sell on Walmart, Ebay or Wayfair among others are lower than what Amazon charges.

As a result of Amazon’s price parity agreements and enforcement, Bonta alleges that sellers advertise higher prices on their own websites and on other marketplaces. And for brands that manufacture their own products, they would be charging higher wholesale prices to other retailers and setting higher price floors for resale.

One e-commerce consultant cited in the suit said “some sellers I’ve advised have stopped discounting on other e-commerce websites while others have stopped selling via other websites or online retailers altogether because they don’t want to risk compromising their Amazon business…For sellers who sell primarily on Amazon, jeopardizing their Amazon business to enter into new ecommerce channels is not worthwhile.”

On the wholesale side, the suit described an example where a consumer electronics device supplier tried to offer a discount through an Amazon competitor for a promotional event. This led to Amazon matching the discount and then demanding that the supplier make a $100,000 payment to Amazon to compensate the marketplace platform for the lost margin.

“The supplier was able to negotiate with Amazon to make marketing opportunity purchases, rather than a straight payment, but ‘only sought these marketing opportunities, and only spent this money, in order to satisfy Amazon’s demand for margin offset compensation,’” the suit said.

The suit asked a state court to prohibit Amazon from engaging in the anticompetitive pricing agreements, and to appoint an independent monitor to ensure compliance and impose damages and penalties.

Where the California lawsuit differs from Racine’s antitrust suit is that it is based on the state’s laws, which are more sweeping than federal law or those in Washington, D.C., and include a broad prohibition on “unfair competition.”

Amazon was on the wrong side of a court ruling in March, when a federal judge in Seattle ruled that the company would have to face a class-action lawsuit from a group of consumers accusing the tech titan of re-instituting the “most-favored nation” pricing after pledging to abandon the agreements.

The fight in California is, as usual, one of many on the antitrust front. Two significant pieces of bipartisan legislation have been introduced in Congress, both designed to limit the breadth of Big Tech companies like Amazon, Google, Facebook owner Meta and Apple.

The first package of bills introduced in June 2021 had a more direct impact on Amazon. If the bills passed, the company would be forced to split its business into two separate entities for its third-party marketplace and for first-party sales, or divest or shut down the sale of its own products.

In March, the House Judiciary Committee accused Amazon of obstructing Congress by refusing to provide information sought by the body’s antitrust subcommittee, calling for the Department of Justice to investigate “potentially criminal conduct” by Amazon and some of its executives.

And amid multiple antitrust investigations in Europe, the Big Tech firm also recently acquiesced to complaints from the European Commission by making it easier for consumers across the pond to cancel their Prime subscription. Amazon has offered to stop using seller data for its own competing retail business and its private-label products within its European operations in hopes that it can avoid a possible fine of up to 10 percent of the company’s global sales.