Washington DC's Attorney General (AG) Karl A. Racine filed an antitrust lawsuit against Amazon, accusing the retailer of engaging in "anticompetitive practices" that he alleged "have raised prices for consumers and stifled innovation and choice across the entire online retail market."
While accusations of anti-competitive practices lobbed against Amazon aren't exactly surprising, the lawsuit is a pretty remarkable development nevertheless - although, as the Washington Post
pointed out, the lawsuit was not filed in federal court. We don't know whether other state AGs will hop on DC's bandwagon.
In a tweet
, the DC AG alleged that Amazon maximizes its profits at the expense of third-party sellers and consumers.
An Amazon spokesperson provided EcommerceBytes with the following statement:
"The DC Attorney General has it exactly backwards - sellers set their own prices for the products they offer in our store. 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."
Below, we cover some of the allegations from Attorney General Racine's announcement and complaint (PDF format
), which is worth reading if you sell on online marketplaces.
Amazon Seller Fees
The lawsuit states that Amazon's basic fee (its "referral fee") is 15% on most products, but says when adding up all fees, including the (optional) FBA (fulfillment) fees, "sellers on Amazon.com pay a 45% commission."
Amazon Polices: "Most Favored Nation"
The Attorney General alleges that Amazon's provisions and policies, which it referred to as "most favored nation" (MFN) agreements, prevent third-party sellers that offer products on Amazon.com from offering their products at lower prices or on better terms on any other online platform, including their own websites.
The AG said Amazon removed its price parity policy (PPP) in 2019 after facing "intense scrutiny from Congress and US government regulatory officials," but alleged it "quickly replaced the PPP with an effectively-identical substitute, its Fair Pricing Policy ("FPP").
"TPSs are required in the modified BSA to agree to all Amazon policies, including the FPP, which permits Amazon to impose sanctions on a TPS that offers a product for a lower price or on better terms on a competing online retail sales platform."
(BSA stands for Business Solutions Agreement that Third Party Sellers (TPSs) sign - the Attorney General really let the acronyms (initialisms) fly in his announcement.)
Amazon Buy Box Algorithms
The lawsuit delves into how third-party sellers get exposure on Amazon through the Buy Box:
"Being awarded Amazon's Buy Box is critical for TPSs: 82% of all TPSs' sales on Amazon's platform occur through the Buy Box, and the percentage is even higher for mobile purchases. Most people searching for a product on Amazon's platform will not even see a TPS's product unless it appears in the Buy Box, putting those non-Buy-Box TPSs at a significant competitive disadvantage."
It goes on to say:
"Amazon's selection of a product for the Buy Box occurs through operation of a complex algorithm that considers a variety of factors. Notably, the Buy Box is not reserved for the best-priced product. Instead, Amazon's selection methods for the Buy Box winner consider factors that further reinforce Amazon's online retail sales market dominance.
"For example, the Buy Box selection algorithm favors those sellers who pay Amazon for FBA over those who do not. This is true even though a seller who is not using FBA has the lower price. The Buy Box algorithm also considers whether a seller is "Prime eligible," meaning eligible for free 2-day delivery under the "Amazon Prime" program."
Amazon "Price Controls"
In his announcement of the lawsuit on Tuesday, Attorney General Racine wrote, "We filed this antitrust lawsuit to put an end to Amazon's illegal control of prices across the online retail market. We need a fair online marketplace that expands options available to District residents and promotes competition, innovation, and choice."
And, he said, the lawsuit specifically alleges that Amazon raises prices for consumers; stifles competition in the online retail market; and deprives consumers of choice.
"With this lawsuit, OAG is seeking to end Amazon's use of illegal price agreements to foreclose competition and maintain its monopoly in online retail sales. Additionally, the lawsuit seeks to recover damages and impose penalties to deter similar conduct by Amazon and other companies."
Amazon's dominance is what has attracted scrutiny from lawmakers and regulators here and abroad. According to Racine, "Amazon is the world's largest online retailer, controlling 50-70% of the online market sales."
Does the Attorney General get it right about selling on Amazon? And will the lawsuit help or hurt online sellers?