California sues Amazon for ‘thwarting’ competition through seller agreements

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Topline

California Attorney General Rob Bonta filed a lawsuit against Amazon on Wednesday, claiming the online retail giant inflated prices for consumers and stifled competition with other online retailers by forcing merchants to enter into agreements that violate state antitrust laws.

Highlights

The court case filed in San Francisco Superior Court alleges the company violated the state’s Unfair Competition Act and Cartwright Act by forcing merchants into agreements that ‘severely penalize’ them for offering products at unfair prices lower on other online retail sites.

bonta argue these agreements, which require merchants to price their products as favorably on Amazon as they do on their own or any other website, “hinder other online retailers’ ability to compete.”

He says consumers are facing higher prices on other sites as a result, as merchants know “full well they can’t afford to say no” to Amazon’s deals.

Merchants who do not agree to Amazon’s pricing terms risk having their products removed from Amazon’s site, as well as having their account suspended, according to the lawsuit.

The lawsuit seeks a court order prohibiting Amazon from entering into anti-competitive contracts, appointing a court-approved monitor, and returning “ill-gotten gains” to other companies allegedly harmed by Amazon’s practices, although that Bonta does not indicate a precise amount.

Key context

The lawsuit comes amid the company’s meteoric growth, which has exploded during the pandemic when physical retailers were forced to close. Amazon has grown from a $920 billion business to a $1.49 trillion business in the first few months of 2020 alone. Nearly nine in 10 shoppers in a recent Feedvisor survey said they were more likely to buy on Amazon than anywhere else, while 96% of Amazon Prime Members said the same.

Tangent

The lawsuit against Amazon is the latest antitrust action against a tech giant. The Federal Trade Commission sued Meta, Facebook’s parent company, over its acquisitions of Instagram and WhatsApp and its proposed purchase of a virtual reality company, a list of mergers that the FTC says is anti-competitive. Google has also been confronted State and federal antitrust lawsuits, and the Justice Department is reportedly preparing a lawsuit against Apple, claiming its App Store policies stifle competition. On Wednesday, a court of the European Union confirmed a $4.13 billion fine against Google for violating antitrust laws by nullifying competition on Android phones.

Contra

Previous attempts to crack down on alleged anti-competitive practices have had mixed results. In March, a federal judge fired a lawsuit filed in Washington DC that claimed Amazon’s pricing scheme had harmed other online retailers, ruling there were insufficient details to support the allegation, while a another federal judge made a similar decision Case in Washington could go forward as a class action.

crucial quote

“For years, California customers have paid more for their online purchases because of Amazon’s anti-competitive contracting policies,” Bonta said in a statement Wednesday afternoon.

Further Reading

California sues Amazon over alleged antitrust violations that inflated prices and stifled competition (The Wall Street Journal)

California sues Amazon, alleging antitrust violation (Associated Press)

California files lawsuit against Amazon alleging anti-competitive contracts with retailers (LA Times)

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