Amazon is facing an antitrust lawsuit for fixing retail product prices. Experts said the argument likely won't hold up and Amazon will fight it 'tooth and nail.'
The pushback against big tech continues with yet another antitrust lawsuit -- this time against Amazon for its alleged dominant control of online retail.
Washington, D.C., Attorney General Karl Racine filed the Antitrust lawsuit against Amazon on Tuesday, alleging the company used contract agreements to prevent third-party sellers from selling their products at a cheaper price on other platforms, including their own websites. Because it controls 50% to 70% of online market sales, making it the world's biggest online retailer, Amazon's policies amount to price manipulation, according to the lawsuit.
The Amazon antitrust lawsuit is the latest in a string of lawsuits against powerful tech companies, including the U.S. Department of Justice's lawsuit against Google in October 2020, followed by the lawsuit filed against Facebook last December by the Federal Trade Commission and 48 state attorneys general. More recently, the European Union leveled antitrust allegations against Apple for its app store practices -- something the company is currently facing trial for in the U.S.
Ray Wang, founder and principal analyst of Constellation Research in Monte Vista, Calif., said lawmakers want to keep companies like Amazon in check and said antitrust lawsuits serve as a reminder to the public that the federal government is keeping tabs on their activities.
However, the allegations against Amazon might not hold up, Wang said. The legal team will have to prove Amazon's prices were inflated on other platforms because of its contract agreements, which he said could be difficult because Amazon's low prices likely kept prices down on other sites as well.
"It would be one thing if prices were higher for everybody," Wang said. "But in this case, prices are lower because of Amazon, so it's going to be very hard for them to prove this."
Details of the antitrust lawsuit against Amazon
Amazon's demand to provide the lowest price on products is an "illegal control of prices across the online retail market," Racine said in a press release.
[Amazon's] biggest asset to shoppers is low prices, and you can bet they'll throw every argument in the book against this.
Sucharita KodaliAnalyst, Forrester Research
Amazon's provisions and policies for third-party sellers, known as "most favored nation" (MFN) agreements, require third-party sellers to incorporate fees charged by Amazon into the total product price on Amazon, as well as on any other online retail platform. The release said Amazon's fees can be as much as 40% of the total product price.
The agreements create an "artificially high price floor" across online retail platforms, giving Amazon monopoly power over online retail. The company's actions violate the District of Columbia's Antitrust Act, according to the lawsuit.
Also according to the lawsuit, Amazon removed its price parity policy in 2019 that prohibited third-party sellers from selling products at a cheaper price on other platforms. However, the lawsuit claims Amazon replaced that policy with another -- the Fair Pricing Policy -- which allowed Amazon to remove third-party sellers if they offer products at a lower cost somewhere else.
"Amazon has used its dominant position in the online retail market to win at all costs," Racine said in the press release. "It maximizes its profits at the expense of third-party sellers and consumers, while harming competition, stifling innovation and illegally tilting the playing field in its favor."
The antitrust action comes as no surprise, and Amazon will likely fight the charges "tooth and nail," said Forrester Research analyst Sucharita Kodali.
"Their biggest asset to shoppers is low prices, and you can bet they'll throw every argument in the book against this," Kodali said. "And even when a seller may not allow this, Amazon still has a 'discount provided by Amazon' last ditch option to win on price -- with Amazon providing the discount."
'It's not a price-fixing instrument'
Aurelien Portuese, director of antitrust and innovation policy at the Information Technology and Innovation Foundation, described the approach Racine is taking in his antitrust lawsuit against Amazon as surprising and "puzzling."
Lawsuits over price parity clauses such as MFN agreements have been going on for years in Europe without much luck. In 2019, the German Dusseldorf Court of Appeal decided that MFN agreements used by travel site Booking.com in its relationship with hotels were pro-competitive.
"It's not a price-fixing instrument in the sense that the platform doesn't set the price; it just says that if you put a price, it needs to be the cheapest one or the most competitive one you could ever offer," Portuese said.
According to Amazon's statement, Racine "has it exactly backwards," noting that sellers set their own prices for the products offered in Amazon's 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," according to an Amazon spokesperson. "The relief the AG seeks would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law."
Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington Star-News and a crime and education reporter at the Wabash Plain Dealer.
