Amazon Hit With Suit Claiming It Forces Wholesalers To Guarantee Its Profit

The evidence of Amazon's anti-competitive practices continues to grow. The problem is that remedies, to date, have been minor rounding errors for the ecommerce behemoth, especially since consumers continue to use it. 

The question is if and when Congress may finally feel compelled to act. JL

Cristiano Lima reports in the Washington Post:

DC Attorney General Racine is accusing the tech giant of maintaining its monopoly by locking wholesalers that provide the company with goods into anti-competitive agreements. Racine alleges Amazon has illegally stifled competition by requiring that wholesalers, guarantee the tech giant will make a minimum profit when it buys and resells their goods as its own. The deals allow Amazon to lower its prices to beat out competitors and make the wholesalers compensate it for any lost profit. This leads wholesalers to increase their prices when selling to Amazon’s rivals, thus making it harder to compete

D.C. Attorney General Karl A. Racine sued Amazon in May over allegations it fixes prices online by preventing the third-party sellers that use its marketplace from offering their products at lower prices elsewhere.

Now the Democratic attorney general is widening the scope of the suit, accusing the tech giant of maintaining its monopoly by locking the wholesalers that provide the company with goods into anti-competitive agreements. (Amazon founder Jeff Bezos owns The Washington Post.)

In a newly filed amended complaint shared with The Technology 202, Racine alleges that Amazon has illegally stifled competition by requiring that first-party sellers, or wholesalers, guarantee the tech giant will make a minimum profit when it buys and resells their goods as its own. 

Racine said his office uncovered through an investigation that the arrangements “insulate Amazon’s online marketplace from competition, further entrench its monopoly, and result in higher prices and less choice for consumers.”

“We knew Amazon’s anti-competitive behavior was far-reaching — and through our investigation, we’re realizing just how far it goes,” he told The Technology 202.

According to the updated suit, the deals allow Amazon to lower its prices to beat out competitors and make the wholesalers who provided it with goods compensate it for any lost profit. This in turn leads wholesalers to increase their prices elsewhere, including when selling to Amazon’s rivals, thus making it harder to compete with the e-commerce giant, Racine alleged. 

The change adds a new dimension to Amazon’s antitrust battles, where it will now need to beat back a fresh set of arguments for why it is a monopoly. 

It’s the first major lawsuit in the United States to target the practice by Amazon, which has faced regulatory scrutiny over its dealings with third-party vendors. Critics have long said the company has strong-armed the latter into unfair deals that make it difficult for rival marketplaces to offer competitive prices. The updated suit adds a new layer to that argument.

Amazon spokesman Jack Evans pointed to a past statement the company issued about the lawsuit, which said, “The DC Attorney General has it exactly backwards – sellers set their own prices for the products they offer in our store.” The statement added, "The relief the AG seeks would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law.”

The action also amplifies Amazon’s legal threats in the United States, where it has been under investigation by the Federal Trade Commission and targeted by new legislation on Capitol Hill. 

State attorneys general in Massachusetts, Pennsylvania, New York and California are also examining whether Amazon has violated antitrust laws, according to news reports.

The European Commission, meanwhile, launched a second antitrust probe in November into whether Amazon has violated its competition policies by allegedly using data from third-party vendors who operate on its marketplace to give its own products an edge.

It’s unclear to what extent, if any, those investigations have targeted Amazon’s grip over its wholesale business, now under fire from Racine. But it hasn’t gone unnoticed. 

During the House Judiciary Committee’s sweeping antitrust investigation into the tech sector, PopSockets chief executive David Barnett testified that his company struck a deal with Amazon for the company to sell its products, only to have the tech giant lower the selling price on them and demand that PopSockets pay for the lost profit margin.

Barnett highlighted the incident to show “the asymmetry in power between Amazon and its partners.” The Judiciary Committee’s antitrust panel listed the arrangement as one of the “abusive tactics” Amazon deploys to exert control over the market in its blockbuster final report. 

The panel also concluded that Amazon “leverages its market power” by forcing “manufacturers that would prefer to be third-party sellers into being wholesalers” for the site.

Stacy Mitchell, co-director of the anti-monopoly group Institute for Local Self-Reliance and a prominent Amazon critic, said Racine's new complaints “strengthen the case for a structural remedy” against Amazon because it shows the reach of its power.

"So often Amazon's market power is sort of seen in this one dimensional way, and in fact Amazon plays these multiple role roles in the market," she said.