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Amazon Is Getting Sued for Blocking Price Competition

The state of California is suing Amazon for allegedly forcing its third-party sellers to enter into unfair price agreements and thereby stifling competition and raising prices across the state. California Attorney General Rob Bonta filed a complaint Wednesday in the San Francisco Superior Court, alleging that the ecommerce giant stifled competition and caused increased prices across California through anticompetitive contracting practices —  tactics that would be in violation of California’s Unfair Competition Law and Cartwright Act.

It is Amazon’s contractual language with third-party sellers that is at the center of the lawsuit, with the state of California alleging that it commits merchants to “price parity.” Allegedly, in order to avoid competing on prices with other online ecommerce sites, Amazon requires merchants to enter into agreements that severely penalize them if their products are offered for a lower price off Amazon.

In a release, Attorney General Bonta alleges that these agreements thwart the ability of other online retailers to compete, contributing to Amazon’s dominance in the online retail marketplace and harming merchants and consumers through inflated fees and higher prices.

“For years, California consumers have paid more for their online purchases because of Amazon’s anticompetitive contracting practices,” Attorney General Bonta said in the release about the lawsuit. “Amazon coerces merchants into agreements that keep prices artificially high, knowing full well that they can’t afford to say no. With other ecommerce platforms unable to compete on price, consumers turn to Amazon as a one-stop shop for all their purchases. This perpetuates Amazon’s market dominance, allowing the company to make increasingly untenable demands on its merchants and costing consumers more at checkout across California.

“The reality is: Many of the products we buy online would be cheaper if market forces were left unconstrained. With today’s lawsuit, we’re fighting back. We won’t allow Amazon to bend the market to its will at the expense of California consumers, small business owners, and a fair and competitive economy.”

Editor’s note: If you’re a third-party seller on Amazon or retailer in competition with the retail giant and would like to share your thoughts on the lawsuit and how it could affect gift-industry business, email Lenise Willis at [email protected]

Amazon’s Retail Dominance

With more than 160 million Prime members nationwide and around 25 million customers in California alone, Amazon is an ecommerce giant that is dominating the retail space. According to one survey, 96 percent of all Prime members said that they are more likely to buy products from Amazon than any other online store, and 74 percent of all consumers go directly to Amazon when they are ready to buy a specific product.

The release from the Office of the Attorney General goes on to say:  “Because of this, Amazon is a must-have distribution channel for merchants, and more and more third-party sellers join Amazon every day, despite the fact that the total cost of selling on Amazon far exceeds that of selling in other online stores. As one seller put it, ‘We have nowhere else to go and Amazon knows it.’ Another said, ‘There is no viable alternative to Amazon for my business.’”

Blocking Price Competition

The focal point of the lawsuit is in regards to Amazon’s alleged tactics that block price competition. According to the Office of Attorney General Bonta, “Amazon has orchestrated the substantial market power it now enjoys through agreements at the retail and wholesale level that prevent effective price competition in the online retail marketplace. Merchants must agree not to offer lower prices elsewhere — including competing sites like Walmart, Target, eBay, and, in some cases, even on their own websites — and to accept drastic penalties like loss of the ‘Buy Box’ on Amazon or to ‘compensate’ Amazon if other online stores do lower their prices. Merchants that do not comply face sanctions such as less prominent listings and even the possibility of termination or suspension of their ability to sell on Amazon.”

Anonymous sellers reported in the release that because they pay less in fees on their own websites, as well as others, they could potentially sell their products for lower prices on those sites, however, they don’t because Amazon would disqualify their offers from the Buy Box, the white box on the right side of the Amazon product detail page where customers can add items for purchase to their cart.

Lawsuit and Requested Relief

In Wednesday’s lawsuit, Attorney General Bonta alleges that these price parity agreements have expanded and entrenched Amazon’s market power as an online retail store, impeded rivals, and resulted in pricing above competitive levels in California in violation of the Unfair Competition Law and the Cartwright Act.

The Attorney General’s lawsuit seeks an order from the San Francisco Superior Court that stops Amazon’s anticompetitive behavior and recovers the damages to California consumers and the California economy. Specifically, the lawsuit asks the Court to:

  • Prohibit Amazon from entering into and enforcing its anticompetitive contracts that harm price competition
  • Require Amazon to affirmatively notify vendors that it does not require sellers to offer prices on par with off-Amazon prices
  • Appoint a Court-approved monitor, to ensure Amazon’s compliance with the Court’s order
  • Order damages to compensate for the harms to consumers through increased prices
  • Order Amazon to return its ill-gotten gains and pay penalties to serve as a deterrent to other companies contemplating similar actions.

A copy of the complaint, which was submitted to the Court Wednesday, is available here.

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