Amazon is accused of punishing third-party sellers – why it’s so hard to prove

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California Attorney General Rob Bonta pleads in new antitrust court case against Amazon (AMZN) that its restrictive seller policies are unlawfully disrupting the state’s economy, marking the latest lawsuit pitting Amazon’s seller relationships against U.S. antitrust laws.

So far, neither the government nor private plaintiffs have prevailed in cases arguing that Amazon’s tactics were illegal. A similar case brought by the attorney general in Washington, DC was dismissed in May. However, this time could be different, say antitrust lawyers and economists. Amazon is forcing sellers into a price war that only the e-commerce giant can win, according to the California case.

“There’s definitely an anti-competitive story to tell, but to me there’s also a compelling free rider defense for Amazon,” the Penn State Law professor said. John Lopatkawhich refers to Amazon’s fear that sellers will use Amazon’s platform to generate interest in their products and then sell them elsewhere.

Bonta’s lawsuit is distinct from other antitrust cases that have targeted Amazon’s seller terms because it alleges violations of California law, narrows the so-called “relevant market,” and focuses on alleged punishment by the business from the seller’s behavior.

But the case is still hard to prove, Lopatka said. This is partly because Amazon’s sales agreements technically allow sellers to set their own prices, and partly because of Amazon’s desire to offer the lowest possible price – both tend to appear as policies that promote competition.

In fact, according to the complaint, Amazon artificially inflates prices on competing retail websites, such as Walmart.com (WMT), Target.com (TGT), and eBay.com (EBAY) — and even on sellers’ own websites, forcing its third-party sellers and wholesalers to lower the prices of goods sold online.

‘It’s a nightmare’

Amazon allegedly penalizes sellers for not getting the right price, demoting products in search results and disqualifying products from the “Buy Box” feature, which allows shoppers to add their products to a payment basket, depending on the trial. For wholesalers, Amazon’s agreements require sellers to reimburse the company for price discrepancies in the event their product is listed for less on a competing website.

“It’s a nightmare,” said Lesley Hensell, co-founder of Riverbend Consulting, a company that helps third-party Amazon sellers reactivate their suspended accounts. She says accounts are suspended when Amazon identifies certain sellers as not meeting its pricing expectations, citing what’s called a “high pricing error.” Without warning, Amazon’s systems automatically deactivate the seller’s product listing, she said.

SAN FRANCISCO, CALIFORNIA – NOVEMBER 15: California Attorney General Rob Bonta speaks during a press conference outside an Amazon fulfillment facility on November 15, 2021 in San Francisco, California. (Photo by Justin Sullivan/Getty Images)

“Nobody can deal with that kind of uncertainty in their business,” Hensell said. “I can tell you that sometimes high price errors are completely inaccurate. To remedy the problem, sellers need to adjust prices downward until they are low enough to reactivate the product listing.” Sellers often struggle to sell profitably under these requirements, Hensell said, especially as their own manufacturing, sourcing and shipping costs rise.

Heller said that while she has never seen Amazon retaliate against sellers targeted by the company for raising their prices, she also knows that sellers are reluctant to criticize Amazon for their problems.

“For some of these people, it’s their personal income, or their income fuels a company with a lot of employees that they care about,” Heller said. “When difficult things happen to their account, even if they think it’s unfair, they’re often afraid to speak out publicly or even escalate the problem within Amazon. They fear it will hurt them. put a target in the back.”

Amazon has managed to win antitrust fights, so far

One of the reasons for Amazon’s past success in challenging antitrust claims is its argument that its low-cost edicts promote more, not less, competition, driving down the prices of goods sold online.

“It’s a common misconception,” Florian Ederer, an economics professor at Yale University, told Yahoo Finance. “It seems to be pro-competitive, but it’s actually anti-competitive.”

In March 2022, a judge dismissed a similar lawsuit filed by District of Columbia Attorney General Karl Racine. Root argued that Amazon violated district antitrust law because its contracts prevented sellers from offering lower prices for their products on competing websites. Given the requirement, Racine alleged that Amazon’s roughly 40% commission on sales further drove up online prices.

Another antitrust case against Amazon is still pending in Seattle, where a class of consumers lost part of Amazon’s request to dismiss federal antitrust complaints, but convinced a judge to uphold part of their case. According to the judge, Amazon’s requirement that sellers add Amazon’s fees to the cost of their products — even those sold elsewhere — could potentially violate federal anti-competition law.

BEVERLY HILLS, CALIFORNIA – SEPTEMBER 07: (L-R) Kara Swisher and Amazon President and CEO Andy Jassy speak onstage during Vox Media's Code 2022 Conference – Day 2 on September 07, 2022 in Beverly Hills, California .  (Photo by Jerod Harris/Getty Images for Vox Media)

BEVERLY HILLS, CALIFORNIA – SEPTEMBER 07: (L-R) Kara Swisher and Amazon President and CEO Andy Jassy speak onstage during Vox Media’s Code 2022 Conference – Day 2 on September 07, 2022 in Beverly Hills, California . (Photo by Jerod Harris/Getty Images for Vox Media)

Amazon maintained its position that its policies promote competition in a statement to Yahoo Finance, saying, “Like any store, we reserve the right not to highlight offers to customers that are not price competitive. The relief sought by the AG would force Amazon to offer higher prices to customers, strangely running counter to the fundamental purposes of antitrust law.

In 2019, under threat of investigation by the Federal Trade Commission and German regulators, Amazon removed a provision from its sales contracts commonly known as the “most favored nation” (MFN) clause. The provision required sellers to offer items for sale on Amazon on the most favorable terms compared to other online retail platforms.

The California complaint alleges that the penalties imposed on Amazon sellers closely resemble those described by Hensell and have the same force as its earlier MFN provisions.

“In the absence of these agreements, a greater selection and total production of low-priced products would be available in online stores,” the complaint states.

Ederer explains that true floor prices are only exposed without Amazon’s restrictions on sellers. Sellers who offer the same products on their own platforms, he explains, would tend to sell at a slightly lower price than Amazon or other online shopping sites, because outside retailers take a share of their revenue in exchange for carrying the product and exposing it to their consumer base.

As a seller, Ederer says, “I could completely give up on Amazon, but then I’m going to lose all that revenue and I won’t be able to sell on Amazon. Instead, what I’m doing is because Amazon is punishing me for charging a higher price on my own platform, I’m raising the price on my own platform.

Lopatka explains that the effect California is trying to prove — that Amazon is responsible for higher prices on other websites — is also difficult to isolate.

Ederer agrees. “Amazon makes it very, very difficult with these implicit MFNs,” he said. “It’s going to require a good amount of evidence… It’s the type of evidence that the judge said wasn’t really there in the DC case.” He wonders if the sellers can provide enough evidence that they are downgraded in search results, or deprived of the Buy Box, to prevail in the California case.

New York University Law School professor Eleanor Fox sees the California case as one with potentially compelling legal arguments, though she expects it to be played out in ideological terms. rather than legal.

“A conservative judge is more likely to dismiss the case,” she said. “Conservative philosophy assumes that markets work well and correct themselves, and are reluctant to enforce antitrust.”

Fox adds that she expects scenarios like this to play out in more states.

“States are very aware of Big Tech issues,” she said.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

Allie Garfinkle is a senior technical reporter at Yahoo Finance. Follow her on Twitter at @agarfinks.

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