Image Credits: TechCrunch
Amazon must pay $2.25 million and permanently shut down a previously suspended sales program, following an investigation and lawsuit by the attorney general of Washington alleging it was essentially price fixing.
“Sold By Amazon” basically worked like this. Amazon would contact a third-party seller and they would agree on a minimum price for an item. If Amazon sold the item for more, they would split the profits. In a way it’s not so different from buying a bunch of stuff wholesale and reselling it. But due to how Amazon dynamically prices and presents items in the store, that’s not quite what happened.
As the AG’s office explains, Amazon ended up increasing the price of the items to match other retailers, and prevented sellers from offering discounts. As a result, buyers were frequently driven to purchase Amazon’s own brands, which it could price however it chose:
Prices for the vast majority of the remaining products enrolled in the “Sold by Amazon” program stabilized at artificially high levels.
…When prices increased, some sellers experienced a marked decline in the sales and resulting profits from products enrolled in the program. Faced with price increases, online customers sometimes opted to buy Amazon’s own branded products — particularly its private label products. This resulted in Amazon maximizing its own profits regardless of whether consumers paid a higher price for sales of products enrolled in the “Sold by Amazon” program or settled for buying the same or similar product offered through Amazon.
Sounds like a bad deal for sellers, but more fundamentally, Washington AG Bob Ferguson alleged that the practice was in violation of state antitrust laws. Amazon may be a store, but it also sells its own goods, making it a competitor with the third-party sellers in question. And two competitors making a secret agreement controlling the cost of goods is pretty much the definition of price fixing.
Amazon disputed the AG’s characterization, saying it was all for the good of the customer and completely on the level. It also claimed to have shut down the program for “business reasons unrelated to the AG’s investigation.” “While we strongly believe the program was legal, we’re glad to have this matter resolved,” the company said in a statement to TechCrunch.
It’s an extraordinary coincidence, then, that a program that had been expanding since 2018 would shut down almost immediately after antitrust authorities started sniffing around. “We launched the investigation in March 2020 and Amazon suspended the program in June,” said the AG office’s Dan Jackson. Perhaps it was just time.
At any rate, rather than fight the lawsuit in court, Amazon agreed to a consent decree requiring the $2.25 million payment (which will go directly to funding the AG’s antitrust division) and prohibiting Amazon from reactivating the program in any way, shape or form.
“Consumers lose when corporate giants like Amazon fix prices to increase their profits. Today’s action promotes product innovation and consumer choice, and makes the market more competitive for sellers in Washington state and across the country,” said Ferguson.