Amazon is accused of punishing third-party sellers, because it is so difficult to prove [Video]

California Attorney General Rob Bonta is arguing in a new antitrust lawsuit against Amazon (AMZN) that its restrictive seller policies illegally disrupt the state’s economy, marking the latest legal action pitting Amazon’s selling reports against the law. American antitrust.

So far, neither the government nor private plaintiffs have prevailed in cases claiming Amazon’s tactics are illegal. A similar case brought by the Washington DC Attorney General was dismissed in May. However, this time it may be different, antitrust lawyers and economists say. Amazon is forcing sellers into a price war that only the e-commerce giant can win, claims the case of California.

“There is certainly an anti-competitive story to tell, but for me there is also an interesting free rider defense for Amazon,” said John Lopatka, a law professor at Penn State, referring to Amazon’s concern that the sellers use Amazon’s platform to generate interest in their products. then sell them elsewhere.

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

But the case is still hard to prove, Lopatka said. This is partly due to Amazon’s selling agreements technically allowing sellers to set their own prices and partly to Amazon’s drive to offer the lowest possible price, both of which tend to appear as policies that promote competition.

In fact, the complaint alleges that Amazon artificially inflates prices on rival retail websites, such as Walmart.com (WMT), Target.com (TGT) and eBay.com (EBAY), and even on sellers’ websites. , forcing its third-party sellers and wholesale suppliers to lower prices for goods sold online.

‘It’s a nightmare’

According to claims, Amazon 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 cart, the lawsuit claims. . For wholesalers, Amazon’s agreements require sellers to reimburse the company for price differences in the event that their product is offered at a lower price 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. He says accounts are suspended when Amazon identifies some sellers who do not meet his pricing expectations, citing what is known as a “high pricing error”. Without warning, Amazon’s systems automatically deactivate the seller’s product listing, he said.

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

“Nobody can face this 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 have to adjust prices down until they are low enough to reactivate the product listing.” Sellers often struggle to sell profitably based on such demands, Hensell said, especially as their production, supply, and shipping costs rise.

Heller said that while he has never known Amazon to take revenge on sellers who are targeted by the company for raising their prices, he 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 feeds a company with a lot of employees that they care about,” Heller said. “When difficult things happen in their account, even if they think it is unfair, they are often afraid to speak out publicly or even aggravate the problem within Amazon. They fear it may put a target on their backs.”

So far, Amazon has managed to win the antitrust fights

One reason for Amazon’s past success in challenging antitrust claims is its argument that its low price edicts promote more, not less, competition by lowering the prices of goods sold online.

“This is a common misconception,” Yale University economics professor Florian Ederer told Yahoo Finance. “It looks like it’s pro-competitive, but it’s actually anti-competitive.”

In March 2022, a judge dismissed a similar lawsuit brought by District of Columbia Attorney General Karl Racine. Racine said Amazon violated the district’s Antitrust Act because its contracts prevented sellers from offering lower prices for their products on competing websites. Given the requirement, Racine said Amazon’s roughly 40% commission on sales has further raised prices online.

Another antitrust case against Amazon is still pending in Seattle, where a class of consumers lost part of Amazon’s request to deny federal antitrust claims, but convinced a judge to keep part of their case. According to the judge, Amazon’s requirement that sellers add Amazon fees to the cost of their products, even those sold elsewhere, could potentially conflict with federal anti-competitive law.

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

Amazon maintained its stance that its policies promote competition in a statement to Yahoo Finance, stating, “Like any store, we reserve the right not to highlight offers to customers that aren’t competitively priced. AG tries to force Amazon to present higher priced offers to customers, strangely going against the fundamental objectives of antitrust law ”.

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

The California complaint argues that the Amazon seller penalties are very similar to those described by Hensell and gain the same strength as its previous MFN provisions.

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

Ederer explains that actual minimum prices are only displayed without Amazon’s restrictions on sellers. Sellers offering the same products on their own platforms, he explains, would tend to sell at a slightly lower price than Amazon or other online retail sites, because external retailers take a reduction in their sales revenue in exchange for transportation. of the product and exposing it to their own consumer base.

As a seller, Ederer states, “I may completely give up on Amazon, but then I will lose all revenue and will not be able to sell on Amazon. Instead what I do is, as Amazon is punishing me for charging a higher price on my platform. , I raise the price on my own platform “.

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

Ederer agrees. “Amazon essentially makes it very very difficult to make these implied MFNs,” he told her. “It will take a fair amount of evidence … This is the kind of evidence the judge felt did not exist in the DC case.” He wonders if sellers can provide enough evidence that they are downgraded in the Buy Box search results or private to prevail in the California case.

Eleanor Fox, a professor at New York University School of Law, sees the California case as a case with potentially compelling legal arguments, although she expects it to take place in ideological rather than legal terms.

“A conservative judge is more likely to reject the case,” he said. “The conservative philosophy assumes that markets function well, correct themselves and are reluctant to enforce antitrust.”

Fox adds that it expects scenarios like this to develop in more states.

“States are very much on top of Big Tech problems,” he said.

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

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

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