Image: Karl Racine DC Attorney General

D.C. Lawsuit Aims At Amazon’s Monopoly Conduct

Date: 1 Jun 2021 | posted in: Retail | 0 Facebooktwitterredditmail

An antitrust lawsuit filed by Washington, D.C., Attorney General Karl Racine is a milestone in the fight against the monopoly power of online retail juggernaut Amazon. It is the first action by a government enforcer in the U.S. aimed at ending the company’s persistent abuse of consumers and the small businesses forced to sell on its platform.

The A.G. sued Amazon over the company’s policy of forcing small businesses and others who sell on Amazon’s marketplace to charge the same prices for their goods on other retail websites, prices that Amazon artificially inflates through the arbitrary monopoly tolls it compels sellers to pay. Under Amazon’s price parity policy, if an Amazon seller offers a lower price on a different website — even its own — Amazon will punish them by burying or removing their listings from its marketplace, the lawsuit alleges. In other words, small businesses are forced to play by Amazon’s rules and charge inflated prices across the web, or risk losing access to Amazon’s dominant platform. As a result, Amazon is inflating consumer prices, not only on its own site, but on other sites.

The lawsuit lays out a case that closely tracks the findings of ILSR’s 2020 report, Amazon’s Monopoly Tollbooth. That report concluded that Amazon’s high fees and pricing practices not only inflict significant harm on the independent small businesses that sell on its site, but also entrench and enlarge Amazon’s market dominance. Amazon keeps an average of 30 percent of every sale on its site, the report found, up from 19 percent just five years ago. Amazon’s exorbitant tax on every sale leaves many small businesses at risk of going under. Only 10 percent of sales on Amazon are made by companies who have been in operation for five years or more. Meanwhile, Amazon takes more and more from small businesses. In 2019 alone, seller fees netted Amazon nearly $60 billion — nearly double the revenue from its dominant cloud computing business, Amazon Web Services.

The lawsuit reveals a significant part of Amazon’s plan to control where and how goods are bought and sold in America. As the lawsuit details, Amazon uses its control over third-party sellers to both enrich itself and ensure rival shopping sites can’t win customers by offering lower prices. As a result, it raises prices for online shoppers no matter where they choose to shop. It also uses its control of online commerce to threaten the livelihoods of small businesses, stifling other retailers’ ability to compete.

The claims in the lawsuit fall squarely within the “consumer welfare” framework that, despite its serious failings, many judges require to prove harmful monopoly conduct. Under that framework, consumer prices are the ultimate barometer of competitive harm; most judges will only find a violation of the law if a monopolists’ actions lead to higher prices for shoppers. According to the complaint, small businesses that sell on Amazon “cannot offer lower prices on competing platforms, even if they can profitably do so. And, in setting prices elsewhere online, those sellers must incorporate the cost of Amazon’s high fees into their sales prices. The real-world impact of Amazon’s [pricing clauses] is higher prices for consumers across the online retail market.” What’s more, Amazon’s price parity policy also stifled choice for both shoppers and small business sellers, which “suppressed innovation, and reduced investment in potentially-competing online retail sales platforms,” the lawsuit alleges.

To end Amazon’s harmful acts laid out in the lawsuit, Racine asked the D.C. Superior Court both to enjoin Amazon from continuing with its exclusionary anti-competitive practices — to force Amazon to end its pricing clauses, in other words — and to “remove any ability of Amazon to harm competition by disadvantaging any current, potential, or nascent threat to its market power, including but not limited to structural relief” — breaking up the company along its lines of business — along with forced changes to the company’s conduct.

Photo Credit: Tyrone Turner / WAMU

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Ron Knox

Senior Researcher

Ron Knox is the senior researcher and writer for the Independent Business Initiative. He has studied and written about antitrust and monopoly power for more than a decade. Before joining ILSR, he worked in various senior editorial roles at Global Competition Review, and his antimonopoly writing has appeared in The Washington Post, Slate, The American Prospect and elsewhere. He is based in Kansas City.