Eric Risberg/AP Photo
California Attorney General Rob Bonta announces a lawsuit against Amazon during a news conference in San Francisco, September 14, 2022.
In 2019, Shaoul Sussman, then a legal fellow at the Institute for Local Self-Reliance and today an adviser at the Federal Trade Commission (FTC), wrote a piece for the Prospect about how Amazon imposes control on third-party sellers, and how this impacts consumers. It was an ingenious way to think about a lawsuit against Amazon under the current terms of antitrust jurisprudence, based on the so-called “consumer welfare” standard.
That standard asserts that anti-competitive behavior only exists if there are harms to consumer welfare, which many jurists liken to consumer prices. But Amazon requires its third-party sellers to sell on Amazon at the lowest price relative to other e-commerce outlets. This was once an explicit price parity agreement until early 2019, when Amazon dropped the clause from its contracts out of fear that the FTC would begin an investigation. But sellers have consistently said price parity is still enforced through Amazon’s “Fair Pricing Policy.” Sellers who list cheaper prices elsewhere on the internet allege that they are denied the “buy box” where most purchases are made.
If Amazon’s practices ensure the lowest possible price, how could Amazon ever be hit with an antitrust violation? The answer, Sussman reasoned, is that sellers could offer their products at other e-commerce outlets for less—they just don’t do it for fear of getting penalized by Amazon.
Now, a typical modest company could not have this effect, but Amazon is different. Most sellers have no choice but to offer products on Amazon, where most of the eyeballs are. What’s more, the company demands a huge cut of third-party seller sales; 34 cents out of every dollar in sales, as of 2021, with more to come thanks to new fees the company has imposed for the holidays. Sellers thus need to keep their Amazon price up to be able to stay ahead of its grasping fees, and its policy extends that price to other companies.
In short, Amazon’s forced price match is effectively raising prices at other retail outlets. “It is very hard to argue that raising the prices that customers have to pay for same products in outlets like Target is beneficial to anyone but Amazon,” Sussman wrote. Other outlets don’t take as big a bite, meaning that sellers could earn the same margin with lower prices. Amazon doesn’t let them do that, and we all suffer as prices go up. This also keeps sellers from improving products, since their margins are so squeezed by Amazon. It creates a barrier to investment and innovation, another harm 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 antitrust law. “Through its illegal actions, the, quote, ‘everything store’ has effectively set a price floor costing Californians more for just about everything,” Bonta said at a news conference.
A similar lawsuit was filed last year by D.C. Attorney General Karl Racine. That case was thrown out of court in March; it’s currently under appeal. But a class action lawsuit with the same assertions 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 raising prices at other retail outlets.
Bonta has said that the case involved evidence-gathering that stretches back to 2012, and is being brought under California law, which he believes is favorable to his case. Xavier Becerra, the former AG in California who is now the secretary of health and human services, initially opened this investigation at the beginning of 2020, about six months after Sussman’s story.
Clearly, Amazon is getting a lot of heat for this particular price parity policy, because it’s the easiest to explain in a way that is consistent with the consumer welfare theory of antitrust law. Amazon engages in plenty of other practices that could harm workers, business partners, and innovation, but if the courts are only going to care about consumers, there’s a case for that too. “Like busting Capone for tax fraud, the need to pursue this strategy reveals the poverty of our other enforcement regimes,” as author Cory Doctorow puts it.
Amazon will fight back with its usual canned response: Nobody makes third-party sellers participate in the Amazon marketplace, so if they don’t like the terms, they can go elsewhere. Of course, for decades now, Amazon has diligently structured the e-commerce marketplace so sellers can’t go anywhere else. That’s the entire business model, in fact.
Amazon knows that its marketplace has acquired such fundamental importance that it can throw its weight around by threatening to pull it from entire countries if they try to regulate fair dealing for the company. Amazon just recently did this in Canada, according to a recording revealed by the website The Logic.
“If Canada were to adopt U.S.-style antitrust legislation … we’ve said it in the U.S., we’d have to shut down Marketplace. You would see similar action in Canada in response to similar policy measures,” Amazon’s public-policy director for Canada said in a meeting in 2021. The Prospect confirmed last October that this was the message given to U.S. third-party sellers, in response to proposed bills like the American Innovation and Choice Online Act (AICOA), which still awaits a vote in the Senate.
I tend to think this threat is rather idle. If Amazon ditched its third-party marketplace, all it would have to sell would be its Basics line of in-house products. Then because the entire point of a membership is that Amazon carries everything, a big chunk of its Prime subscribers would probably cancel.
Indeed, Amazon has internally discussed shuttering Basics, as an olive branch to regulators who are concerned about Amazon using data collected from third-party sellers to inform what in-house products it creates. That seems more plausible, especially because Amazon makes a ton of money off third-party sellers, without having to develop or market any products—another reason it would hesitate to shut down its marketplace. It charges such a premium for shipping and logistics and customer service that it makes many multiples more off third-party sellers than its own products.
A smaller country like Canada without the purchasing power of the U.S. might be at risk from being cut off, however. This ruthlessness is how Amazon clawed 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 it crossed the line legally in doing that is up to the courts to decide. But it seems like law enforcers are confident that at least someone will rein in Amazon’s schemes to control sellers, customers, prices, and everything else.
