California files lawsuit against Amazon for blocking price competition

The US state of California filed a lawsuit on Wednesday against online shopping giant Amazon for allegedly violating antitrust laws by blocking price competition. Rob Bonta, the Californian attorney general, said that Jeff Bezos’s company forces small retailers to keep prices artificially high through unfavorable agreements or the fear of having their products taken down from the platform. The lawsuit wants the court to order Amazon to end these practices, and to pay $2,500 in damages for each affected third-party seller.

“For years, California consumers have paid more for their online purchases because of Amazon’s anticompetitive contracting practices,” said Bonta in a statement. The 84-page lawsuit, which is heavily redacted to protect sensitive information, underscores how heavily retailers depend on Amazon. The online platform gives retailers the chance to market their products to the 160 million households that are Amazon Prime members. The company controls 80% of US retail sales of books and magazines, and 50% of electronics, packaged goods and toys.

“For hundreds of thousands of merchants – both third-party sellers and wholesale suppliers – Amazon represents a critical portion of their sales – 20-30% or more – that they could not recover through other channels if they stopped selling on Amazon,” the lawsuit states. The company’s influence on small businesses and third parties is even greater, as they can generate between 80 and 100% of sales from the platform. “Amazon is not loved by sellers, but they are trapped in the platform. You have no choice but to make a deal with the devil,” said an unnamed Amazon competitor in an internal memo.

According to California’s prosecutors, all retailers who want to sell their products on Amazon are offered a Business Solutions Agreement. Under this contract, merchants are barred from selling products at lower prices on their own websites or at the stores of Amazon’s rivals. The agreements require that the wholesaler guarantee Amazon a minimum profit, according to the complaint, meaning the seller must make up the difference if it doesn’t reach that margin.

According to Bonta, Amazon knows that merchants cannot afford to say no to these conditions, even if they mean inflating prices. “With other e-commerce platforms unable to compete on price, consumers turn to Amazon as a one-stop shop for all their purchases. This perpetuates Amazon’s market dominance, allowing the company to make increasingly untenable demands on its merchants,” he said. A consumer advocacy organization claimed in a December 2021 report that Amazon pockets 34% of every transaction made on its platform. According to the group, this percentage was 20% in 2018 and 19% in 2014. The average price that merchants pay just to offer a product has also increased by 28% since 2015.

This is not the first lawsuit to be filed against Amazon. In May 2021, the District of Columbia also filed an antitrust lawsuit against Amazon. In the lawsuit, DC Attorney General Karl Racine accused the e-commerce giant of “illegally abusing and maintaining its monopoly power by controlling prices across the online retail market.” At the time, Amazon spokesperson Jack Evans said: “The DC Attorney General has it exactly backwards – sellers set their own prices for the products they offer in our 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.”

The Federal Trade Commission, the European Union and a special legislative committee are also investigating Amazon for blocking price competition. The lawsuit in California, however, is important because it is one of the company’s most important markets in the United States.

According to California, Amazon’s dominance in warehousing and logistics operations is another barrier for competitors. Bezos’s company has 10,000 trucks and its own fleet of planes, which carry out deliveries from hundreds of warehouses across the country. “Amazon now handles a parcel volume comparable to those handled by the top carriers, including UPS, FedEx and the US Postal Service,” the lawsuit states, adding that Amazon surpassed FedEx’s market share in 2020 thanks to the Covid-19 pandemic. That same year, the company achieved its highest profit in its history with a net profit of $5.2 billion.