California Antitrust Price Lawsuit ‘Has it Exactly Backwards’ – Sourcing Journal

California lawmakers are hoping to accomplish what an earlier antitrust case filed in the nation’s capital couldn’t, with state Attorney General Rob Bonta suing Amazon on Wednesday over allegations it stifled price competition in retail trade.

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

Amazon’s fair pricing rules, known as “most favored nation” agreements, require third-party merchants to set their in-market prices at the lowest they offer among all online alternatives. In other words, sellers selling a product on Amazon cannot sell the same item for a lower price on Walmart, Target, Ebay, or even on their own website.

“Amazon tricks consumers into thinking they are getting the lowest prices possible, when in fact they cannot get the low prices that would prevail in a freely competitive marketplace because Amazon has coerced and incentivized its third-party sellers and wholesale suppliers to enter into anti-competitive agreements on price,” Bonta said in the complaint. “The intent and effect of these agreements is to insulate Amazon from price competition, strengthen Amazon’s dominance , prevent effective competition and harm consumers and the California economy.”

Washington DC Attorney General Karl A. Racine sued the tech titan last year on similar grounds, accusing the company of stifling retail competition through anti-competitive pricing deals with retailers. third-party sellers on its platform that artificially raised prices and deprived consumers of choice. Racine then broadened the lawsuit against Amazon, targeting the company’s similar pricing deals with first-party sellers.

Amazon won the lawsuit in March this year, with a DC Superior Court judge citing a lack of evidence to support the claim that the e-commerce juggernaut inflated prices. The judgment is currently on appeal.

An Amazon spokesperson told The Sourcing Journal that, as in Racine’s case, Bonta “has it exactly upside down.”

“Vendors set their own prices for the products they offer in our store,” the spokesperson said. “Amazon prides itself on offering low prices on the widest selection, and like any store, we reserve the right not to push offers to customers that are not price competitive. The remedy sought by the AG would force Amazon to offer higher prices to customers, which would strangely run counter to the fundamental objectives of antitrust law. We hope the California court will come to the same conclusion as the DC court and quickly dismiss this lawsuit.

Like the DC lawsuit, the California complaint points to pricing arrangements for third-party sellers who sell on Amazon’s marketplace, as well as first-party wholesale vendors who 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 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 lawsuits in California and Washington, suggesting the new policy is an almost identical substitute.

Amazon still imposes penalties on vendors who violate pricing rules, which can range from banning them from being included in the coveted “buy box” that maximizes product visibility and is designed to speed up the checkout process; demote their offerings to the bottom of Amazon’s organic search results; suspend their ability to ship products; and completely ban the seller’s account.

The California lawsuit also targeted Amazon for being deliberately vague with its sellers about the policy and how it can impact their market position.

“As an example of its obfuscation, when Amazon sends a notification to a seller, alerting them that their listing is ‘more expensive on Amazon than at other retailers’, and therefore they have lost eligibility at the Buy Box, it does not disclose the identity of ‘other retailers’ offering the lowest price,” according to the complaint. “Sellers interpret these notices to mean that they have violated the price parity terms imposed Amazon by fixing prices or lowering the price of their products relative to Amazon.”

In addition, the lawsuit points out that the fees for selling on Walmart, Ebay or Wayfair, among others, are lower than those charged by Amazon.

Because of Amazon’s price parity agreements and their enforcement, Bonta alleges that sellers advertise higher prices on their own websites and in other marketplaces. And for brands that manufacture their own products, they would charge higher wholesale prices to other retailers and set higher floor prices for resale.

An e-commerce consultant quoted in the lawsuit said that “some sellers I advised have stopped discounting on other e-commerce websites while others have completely stopped selling through other sites. Web or online retailers because they don’t want to risk jeopardizing their Amazon business….For sellers who primarily sell on Amazon, risking their Amazon business to enter new e-commerce channels isn’t worth it.

On the wholesale side, the lawsuit describes an example where a consumer electronics vendor attempted to offer a discount through an Amazon competitor for a promotional event. This led to Amazon matching the rebate and then requiring the vendor to make a $100,000 payment to Amazon to compensate the marketplace for the lost margin.

“The vendor was able to negotiate with Amazon to make purchases of marketing opportunities, rather than direct payment, but ‘only researched those marketing opportunities and spent the money only to satisfy Amazon’s request. in “margin compensation,” the lawsuit said. said.

The lawsuit asked a state court to enjoin 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 the Racine antitrust lawsuit is that it is based on state laws, which are more general than federal law or those of Washington, D.C., and include a broad prohibition of “unfair competition”.

Amazon was on the wrong side of a court ruling in March, when a federal judge in Seattle ruled the company should face a class action lawsuit from a consumer group accusing the tech titan of restoring the ” more favoured”. national pricing” after pledging to abandon the agreements.

The fight in California is, as usual, one of many on the antitrust front. Two major bipartisan laws have been introduced in Congress, both designed to limit the reach 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 pass, the company would be forced to split its business into two separate entities for its third-party market and for first-party sales, or divest or stop selling its own products.

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

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

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