Online retail giant, Amazon, has maintained illegal business practices, which unfairly raise prices on consumers; suppress innovation, and maintain monopoly power, a suit filed yesterday by Washington, D.C. Attorney General, Karl Racine, alleges.
The complaint, filed in a Superior Court in the District, alleges that third-party sellers on Amazon, in order to access the world’s largest Internet marketplace, must factor into the cost of their products, a commission of up to 40%, payable to Amazon.
Furthermore, third-party vendors who want to sell on Amazon must agree not to sell their own products for a price listed lower than advertised on Amazon, not even on their own website, let alone any other online platform.
These conditions are part and parcel of Amazon’s so-called most-favored nation (MFN) clause, which “Results in artificially high price floors across the online retail marketplace and allows Amazon to build and maintain monopoly power in violation of the District of Columbia’s Antitrust Act,” Racine explained in announcement.
Racine, in an interview on CNBC yesterday, said that as the market leader, Amazon uses its dominance to force third-party sellers to access the marketplace on their terms, otherwise they cannot sell on the platform.
Sellers are rewarded by Amazon’s algorithm if they pay Fulfillment by Amazon (FBA) fees. Paying FBA fees makes it more likely for a seller to have its product(s) highlighted as a feature offer or in the prominent “buy box” area of the online marketplace. In addition, FBA fees make it easier for a product to be eligible for Amazon Prime free two-day shipping.
Last year, Amazon founder and CEO, Jeff Bezos, testified virtually (because of the pandemic) for five hours before Congress over antitrust concerns.
Bezos answered questions from Congress about Amazon’s controversial use of third-party seller data and counterfeit products among other concerns.
“You’d think that, as the company’s founder, chairman and CEO, Bezos would know Amazon better than anyone else. Yet, turns out, he doesn’t seem to know much about the day-to-day operations of his own company,” Sissi Cao of Observer.com wrote of Bezos’ virtual testimony.
After speaking before Congress, Attorney General Racine told CNBC that Amazon merely changed the name of the clause but continued to use the same language in its merchant agreement.
In 2019, Amazon, without fanfare, removed a clause in its business solutions agreement that forbade third-party sellers from selling a product listed on Amazon at a lower price on another website. Racine’s complaint alleges that despite removing the “price parity provision,” Amazon renamed the identical clause in the agreement, “fair pricing policy.”
According to CNBC, Racine is seeking to end what he alleges is Amazon’s illegal use of price agreements to edge out competition.
In addition, the suit asks for damages and penalties to deter similar conduct, and asks the court to stop what it calls the retail giant’s “ability to harm competition through a variety of remedies as needed, which could include structural relief, often referred to as a form of breakup.”
Despite Racine’s announcement, Amazon shares only dipped one percent as of yesterday afternoon.
ARSTechnica.com received a statement from Amazon, which read: “The DC Attorney General has it exactly backwards—sellers set their own prices for the products they offer in our store.”
The statement continued, “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.”