California Sues Amazon Over Unfair Pricing Policies For Sellers

The State of California is suing retail giant Amazon Inc. (AMZN), stating that the company is forcing third-party merchants to align with policies, which lead to artificial created higher prices for consumers.

State Attorney General Rob Bonta on Wednesday said that the anti-trust suit against Amazon merchant agreements, which prevents sellers from putting lower prices on other sites and getting stiff penalties, if they do so. According to Bonta, these agreements prevent competition from other online retailers, thus leading to higher fees for merchants and ultimately, sky-rocketing prices for customers.

“Amazon coerces merchants into agreements that keep prices artificially high, knowing full-well that they can’t afford to say no,” Bonta said in a statement. The suit, which was filed in a state court in San Francisco, asks for Amazon to stop using anticompetitive behavior and provide compensation for California consumers.

The suit comes three years after media reports that Amazon’s pricing rules were making sellers lift their prices on rival sites like Walmart Inc. (WMT) as if the sellers put up low prices, Amazon would make their goods disappear online.

The lawsuit said that sellers could lose their important place on Amazon if they charged lower prices on other retail sites like Walmart.

This is not the first time that Amazon’s policy has come under the scanner. A Washington DC, Attorney General Karl Racine had filed the appeal last year but it was dismissed.

Commenting on the latest lawsuit, Amazon representative Alex Haurek said in a statement on Wednesday, “Sellers set their own prices for the products they offer in our store. The relief Bonta was seeking would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law.”

The Federal Trade Commission has also been investigating Amazon on several fronts. A probe into the company’s retail business, started in 2019 under the Trump administration, has since expanded under Chair Lina Khan into cloud computing services and M&A activity, like its $8.45 billion acquisition of MGM Studios and its proposed deals for other companies.

Bonta showcased Amazon’s dominance in the California suit, calling the 160 million members of its Prime subscription service “the most lucrative customers online.” The state attorney general noted that half of Amazon’s third-party sellers get 80 percent of their revenue from this site.

Bonta commented, “For hundreds of thousands of third-party sellers, Amazon sales are effectively their entire business — lose Amazon, and they lose their livelihood. As a result, the company was able to dictate terms, leading to a vicious anticompetitive cycle in which Amazon wins and its third-party sellers, its wholesale suppliers, consumers, and competition lose.”

“Amazon’s practices, in my opinion, raise prices across the entire internet,” Boyce said. “It hurts small businesses and hurts consumers. The only one that doesn’t get hurt is Amazon,” he added.

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