Alleges thatAmazonengaged inanticompetitive practices that stifled competition and caused increased pricesthroughout California
SAN FRANCISCO– California Attorney General Rob Bonta todayannounceda lawsuit against Amazon allegingthat the companystifled competitionandcaused increased pricesacrossCaliforniathrough anticompetitive contracting practicesin violation of California’s Unfair Competition Law and Cartwright Act. In order to avoid competing on prices with other online e-commerce sites, Amazon requires merchantsto enter intoagreementsthatseverely penalize them iftheir productsare offeredfor a lower price off-Amazon.In today'slawsuit, AttorneyGeneral Bonta alleges that these agreementsthwart the ability ofotheronline retailers to compete,contributing to Amazon's dominance in the online retail marketplace andharming merchants andconsumers through inflated fees andhigher prices.
“For years, California consumers have paid more for their online purchases because ofAmazon'santicompetitivecontractingpractices,”said Attorney General Bonta.“Amazon coerces merchantsintoagreementsthat keep prices artificially high, knowing full well thattheycan't afford to say no.Withothere-commerce platformsunable to compete on price, consumers turnto Amazon as a one-stop shop for all their purchases. This perpetuates Amazon's market dominance, allowing the company to make increasingly untenable demandson its merchants and costing consumersmore at checkout acrossCalifornia. The reality is:Many of theproducts we buy online wouldbecheaper 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 ofCalifornia consumers,small business owners, anda fair and competitiveeconomy.”
Amazon's market dominance:“We have nowhere else to go and Amazon knows it”
Amazon is the dominant online retail store in the United States with more than 160 million Prime members nationwide andaround 25 million customers in California alone. According toone survey, 96% of all Prime members said that they are more likely to buy products from Amazon than any other online store, and 74% of all consumers go directly to Amazon when they are ready to buy a specific product.
Because of this, Amazon is a must-have distribution channel for merchants.Indeed,more and more third-party sellers join Amazon every day, despite the fact that the total cost of selling on Amazonfarexceeds 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 pricecompetition
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 — includingcompeting siteslikeWalmart, Target,eBay, and,in some cases,evenontheir own websites— and toaccept drastic penalties like loss of the “Buy Box” on Amazon or to “compensate”Amazon if other online stores do lower their prices.Merchantsthat donotcomply face sanctionssuch as less prominent listings andeventhe possibility oftermination or suspension of theirability to sell on Amazon.
Without basic price competition and different online sites trying to outdo each other with lower and lower prices, prices artificially stabilize at levels higher than would be the case in a competitive market.This occurs not becauseAmazon competed successfully or because it is a more efficient retailer and marketplace, but because Amazon forbids itthrough coerced agreements.
Amazon's market power leaves merchants withfewoptionsother thanto accede to its demands.Amazon can—and has—raised its prices and reduced the quality of its offerings, while maintaining almostall of itsmerchants and customers. Amazon has usedthismarket power to raise its fees to sellers.
Sellers report that because they “pay less in fees on our own and other websites, we could sell our products for lower prices on these websites,” but “we do not do this” because “if we do, Amazon will disqualify [our] offers from the Buy Box.” Onee-commerce consultant reported thatWalmart, eBay, and other sites “charge much lower fees” than Amazon. “Because the cost to sell on these other websites is lower, my clients would like to offer lower prices on them.” However, “my clients do not offer lower prices on those websites because doing so would result in the suppression of the Buy Box for their Amazon listing.”
Attorney General’s lawsuit against Amazon and requested relief
In today's lawsuit, Attorney General Bontaalleges that theseprice parityagreementshave expanded and entrenched Amazon's market power as an online retail store, impeded rivals, and resulted in pricing above competitive levels in Californiainviolation of the Unfair Competition Law and the Cartwright Act.
The Attorney General’slawsuitseeksan order from the San Francisco Superior Court that stopsAmazon'santicompetitivebehaviorandrecoversthe damages toCalifornia consumers andthe California economy.Specifically, the lawsuitasks theCourt to:
- ProhibitAmazon fromentering intoandenforcingitsanticompetitive contracts that harm price competition;
- RequireAmazon to affirmatively notifyvendors that it does not require sellers to offer prices on par with off-Amazon prices;
- Appointa Court-approved monitor, to ensure Amazon’s compliance with the Court’s order;
- Order damages to compensate for the harms toconsumers through increased prices; and
- Order Amazon to return its ill-gotten gains and paypenaltiesto serve as a deterrent to other companies contemplating similar actions.
A copy of the complaint is available here.
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