Is Amazon Pushing Prices Higher? Legal Wars Are Waging to Prove It
Black Friday is prime time for low prices, and Amazon usually takes a starring role. But regulators around the country are trying to prove that Amazon’s market power drives online prices higher than they should be.
In three court cases, Amazon faces allegations that its policies and practices limit competition on price on and off its platform. At the heart of the arguments is Amazon’s dominance of your online shopping.
Antitrust regulators say that gives Amazon the power to set its own rules for pricing in violation of antitrust laws. If you’re a regular shopper, these protracted court battles leave a question mark hanging over the prices you pay during your holiday shopping and beyond. Two complaints, one lodged by California’s attorney general and another by Washington DC’s, claim Amazon’s market power helps keep prices high by penalizing third-party sellers that offer lower prices on sites outside of Amazon’s.
Bargain-hunting shoppers might find cheaper options on a brand’s website or a competing marketplace, they allege, if it weren’t for Amazon’s practices that stifle sellers from offering lower prices. The company seems to believe “it is better for the Amazon ‘customer experience’ if consumers do not see lower prices off Amazon — regardless of whether they are actually getting the lowest prices possible,” California AG Rob Bonta said. A third case, filed in November, argues that Amazon and Apple have kept prices high for iPhones and other Apple devices.
An allegedly illegal agreement limits how many third-party sellers can list Apple products on Amazon, the suit claims, crimping competition on price. Amazon, according to the lawsuit, used the agreement to transform “its position on Amazon Marketplace from a peripheral seller of Apple iPhones and iPads to the platform’s dominant seller, all while charging higher prices than consumers had previously enjoyed before.” Amazon declined to comment on the lawsuit focused on Apple products, but the company said the claims from the California and DC attorneys general have it “exactly backwards” when it comes the company’s impact on pricing.
“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,” Amazon spokesperson Curtis Eichelberger said in a statement. “The relief the AG seeks would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law.” Amazon is by far the largest e-commerce platform in the US, and third-party sellers turn to Amazon by the millions to reach you with their products. Estimates of Amazon’s share of US e-commerce range from more than 37% of all online shopping transactions to as high as 70%, according to the DC’s attorney general.
When it comes to pricing, Amazon’s critics tend to focus on what they see as predatory low prices that put smaller competitors out of business. But these price-fixing complaints get at another part of the picture, according to Barry Lynn, executive director of the Open Markets Institute. “They’re showing that Amazon is, in a very routine way, forcing consumers to pay more than they need to,” he said.
High costs for third-party sellers
Anti-monopoly advocates argue that Amazon forces prices higher with the costs third-party sellers must pay to participate in its marketplace.
Catering to online shoppers who expect to get their purchases fast, many sellers also pay Amazon to store and ship their products via its huge logistics network. Beyond these costs, sellers must share a cut of their sales with Amazon when customers buy the products. Increasingly, the sellers also pay Amazon for ads that give their products higher placement in search results — the “sponsored” listings you so often see.
With all these costs, sellers might have good reason to charge more on Amazon than on a competing platform or on their own websites, antitrust advocates argue. But sellers won’t risk Amazon’s penalty. In 2019, Amazon removed its explicit policy forbidding lower prices on other platforms, but sellers said they will see their offerings disappear from the “Buy Box,” which is the part of Amazon’s listings that give a price and invite shoppers to “Buy Now.” That’s a death knell for most listings, since shoppers almost never click through to see the same products for sale from other sellers.
Bonta said that practice violates California’s antitrust laws. Karl Racine, the District of Columbia’s AG, also sued Amazon with a similar argument. Amazon argued in that case that its policies don’t explicitly require sellers to keep prices higher on other platforms, adding that Racine’s office had failed to show with facts and examples that businesses were holding back from offering discounts off of Amazon’s marketplace.
A judge dismissed that case, and Racine’s office appealed the dismissal in August. The US Department of Justice also weighed in, telling the court that the dismissal contained errors that could stop the federal government from enforcing antitrust law in the future. The California suit is just getting underway in state court.
Amazon kicks some third-party sellers out
The most recent case — the one against Amazon and Apple, filed by law firm Hagens Berman on behalf of consumers — alleges the companies entered into an illegal agreement to push out third-party competition.
As a result, Apple ended up with fewer third-party sellers offering its products for a lower price on Amazon’s platform, the suit claims, while Amazon got a guaranteed discount on wholesale Apple products for it to sell directly to shoppers. More than 600 third-party sellers offered Apple devices on Amazon prior to 2019, but just seven remained after the tech giants came to an agreement, the lawsuit claims. While Apple has a tightly controlled list of authorized sellers for its products, the lawsuit claims other third-party sellers also get Apple products from wholesalers and aren’t legally barred from listing them online.
Amazon can kick sellers off its marketplace for a variety of reasons, many of them legitimate. For example, it removes sellers Amazon finds violating its policies or when it uncovers listings for counterfeit products. Amazon also cooperates with brands to track listings for counterfeits, often leading to the removal of products or sellers (and sometimes to police raids).
This is something Amazon could potentially claim it was doing with Apple in this case. Amazon declined to comment on whether counterfeiting might have been a factor in the removal of third-party sellers listing Apple products. Apple and attorneys at Hagens Berman didn’t respond to a request for comment.
It may be a challenge to prove that the over 600 sellers offering iPhones and iPads on Amazon’s marketplace were all legit. It would be surprising if that high of a number of small businesses had access to Apple products at wholesale prices and were willing to sell them at steep discounts, said Neil Saunders, a retail analyst at GlobalData. “Apple has fairly tight control over how and where its products are distributed,” Saunders said. “It doesn’t sell to any random person who wants to sell them on Amazon.”
Nonetheless, Apple’s control of how its products are sold — and Amazon’s alleged assistance in limiting the businesses that can sell the devices — are exactly the issues that drew scrutiny from antitrust attorneys to begin with.
The case is in its early days and it will likely be months before a judge weighs in.