Washington D.C. Attorney General Karl A. Racine has filed an antitrust lawsuit against the e-commerce giant, accusing the company of stifling competition through agreements with sellers on its platform, artificially raising prices for consumers and depriving consumers of choice.
The lawsuit alleges that the pricing agreements Amazon imposes on third-party sellers are anticompetitive and allow the tech titan to illegally build and maintain monopoly power in the e-commerce market in violation of the District of Columbia’s Antitrust Act.
“Amazon has used its dominant position in the online retail market to win at all costs. It maximizes its profits at the expense of third-party sellers and consumers, while harming competition, stifling innovation and illegally tilting the playing field in its favor,” Racine said in a statement. “We filed this antitrust lawsuit to put an end to Amazon’s illegal control of prices across the online retail market. We need a fair online marketplace that expands options available to District residents and promotes competition, innovation and choice.”
In the suit, the Office of the Attorney General for D.C. alleges that Amazon fixes online prices through contract provisions and policies it previously and currently applies to third-party sellers on its platform. These provisions, known as “most favored nation” clauses, prevent third-party sellers that offer products on Amazon from selling them at lower prices on any other online platform, including their own websites.
The suit said that the policies effectively require third-party sellers to incorporate fees that account for as much as 40 percent of the total product price, which then raises prices across all channels to “impose an artificially high price floor across the online retail marketplace.” Over the past five years alone, Amazon has added an extra 11 percent to its cut of third-party seller sales due to the fees, according to the lawsuit.
Another central point of the suit comes from the replacement of the company’s “price parity provision,” which Amazon removed in 2019. This provision explicitly prohibited third-party sellers from offering their products on a competing online retail sales platform at a lower price.
But the OAG said that the provision’s substitute, the “Fair Pricing Policy,” enables Amazon to sanction or remove third-party sellers from the marketplace altogether if they offer their products for lower prices or under better terms on a competing online platform. Sanctions include removing the coveted “Buy Box” offering—which gives the product the greatest visibility on a product detail page—pausing the shipment option or suspending sellers’ accounts.
In the face of the allegations, Amazon is standing firm on its seller pricing policies, but has not commented on the role seller fees play in setting them.
“The D.C. Attorney General has it exactly backwards—sellers set their own prices for the products they offer in our store,” an Amazon spokesperson told Sourcing Journal. “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.”
In October, House lawmakers determined in a report that Amazon’s activities were anticompetitive, largely related to the usage of third-party sellers’ data. In one such example, a Wall Street Journal investigation in April last year found that Amazon employees used non-aggregated or easily identifiable data from third-party sellers to inform its own product strategy.
The Federal Trade Commission is currently probing antitrust concerns involving Amazon, and California and Washington state have separately launched antitrust probes, but no suit has yet been filed by any party.
With the suit, the OAG is seeking to end Amazon’s use of what it calls illegal price agreements to foreclose competition and maintain its monopoly in online retail sales. Additionally, the office wants to recover damages and impose penalties to deter similar conduct by Amazon and other companies.
The OAG has a recent track record of going after antitrust violations in Big Tech. The office joined a coalition of attorneys general in filing a lawsuit against Facebook in December, alleging that the social giant has engaged in a pattern of illegal acquisitions and exclusionary conduct to stifle competition and maintain its overwhelming market dominance. That same month, OAG joined a multi-state group of attorneys general in suing Google for exclusionary conduct to maintain or establish its dominance in search and advertising markets.
More antitrust rumblings are coming in the form of independent business owners and trade groups alike. The American Booksellers Association, American Independent Business Alliance, Main Street Alliance, National Grocers Association and many others formed a coalition called Small Business Rising in April to promote stronger antitrust laws while also pushing legislators to break up Amazon.
The coalition, which collectively represents more than 60,000 independent businesses, wants federal legislation that would prevent the owner of a dominant online marketplace from selling its own products in competition with other sellers, a policy that could effectively separate Amazon’s retail product business from its online marketplace.
Antitrust investigations linger on in the E.U., India
Amazon’s antitrust issues follow the company across the globe. The European Commission first opened a formal antitrust investigation into Amazon in 2019. In November 2020, the Commission opened a second investigation into the company’s business practices and officially filed antitrust charges for abusing its dominance in online shopping in France and Germany.
The E.U. filed the objection “with preliminary conclusions that Amazon illegally distorted competition in online retail markets,” said Margrethe Vestager, the European commissioner overseeing competition and digital policy. Vestager added that the company has marginalized sellers and capped their ability to grow.
A February report from Reuters indicated that allegations in India are very similar to those levied by Racine. The report said that Amazon has been giving preferential treatment to a small group of sellers in the market and publicly misrepresented its ties with major sellers, using these ties to circumvent regulatory restrictions there. Amazon has refuted the allegations.
Two of Amazon’s “special merchants” that it helped create within joint ventures, Cloudtail and Appario, ended up accounting for approximately 35 percent of online sales made on Amazon.in as of 2019.
Last August, more than 2,000 online sellers filed an antitrust case against Amazon and Cloudtail, alleging that the former favors some retailers whose online discounts drive other vendors out of business. Amazon and Cloudtail have both said they comply with all laws.
The Competition Commission of India (CCI) reopened a probe into Amazon in March in the wake of the Reuters report.
Labor advocates call to add wage worker to Amazon board
Amazon has other concerns on its plate aside from the antitrust lawsuit, including ongoing labor litigation. For one, the company is now looking to prioritize improvements in the workplace in an effort to follow through on the recent public statements of outgoing CEO Jeff Bezos.
Labor advocates are proposing an unorthodox solution to help achieve this goal: give an employee a board seat.
A resolution from shareholders including non-profit Oxfam America calls for Amazon to consider nominating an hourly employee to its board. The proposal picked up backing from Institutional Shareholder Services (ISS), a proxy adviser that specializes in issuing voting recommendations to clients and shareholders.
Jennifer Bates, an employee at Amazon’s Bessemer, Ala., warehouse, which was the location of a unionization push that ultimately failed, will present the resolution at Amazon’s annual meeting, according to Oxfam.
Amazon’s board has recommended that shareholders reject the proposal. Still, the concept is gaining attention as investors focus on income inequality and social justice issues.
For the meeting, ISS has backed eight other shareholder proposals contrary to the board’s wishes and recommended against approving executives’ pay, although it did recommend electing all 10 Amazon director candidates.