Amazon Accused of Manipulating Prices by D.C. Attorney General
The District of Columbia said in a lawsuit that Amazon had stopped merchants that use its platform from charging lower prices for the same products elsewhere online.,
WASHINGTON — The District of Columbia sued Amazon on Tuesday, accusing it of artificially raising prices for products around the web by abusing its monopoly power, a sign that regulators in the United States are increasingly turning their attention to the company’s dominance across the economy.
In the lawsuit, believed to be the first government antitrust suit against Amazon in the United States, the D.C. government said that Amazon had effectively prohibited merchants that use its platform from charging lower prices for the same products elsewhere online. That, in turn, raised prices for those products not just on Amazon’s website but in other marketplaces as well, it said.
“Amazon has used its dominant position in the online retail market to win at all costs,” said Karl Racine, the attorney general for the District of Columbia. “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.”
Jodi Seth, a spokeswoman for Amazon, said in a statement that Mr. Racine “has it exactly backwards — sellers set their own prices for the products they offer in our store.” She added that Amazon reserved the right “not to highlight offers to customers that are not priced competitively.”
The suit, filed in D.C. Superior Court, shows the early but growing interest in charges that Amazon’s aggressive practices have squeezed small businesses, killed innovation and given it a monopoly over commerce in the digital age. The attention is part of a broader pushback against the largest technology companies. Prosecutors have filed antitrust charges against Google and Facebook, and Apple is also under intense scrutiny.
The Federal Trade Commission has been investigating whether Amazon violated antitrust laws, although their questions have yet to yield a legal complaint. Several states — including California, Washington and New York — have pursued inquiries of their own. And last year, Amazon was one focus of a sweeping House Judiciary Committee investigation into the power of the tech giants, with lawmakers weighing legislation that could restrict the company.
The suit from Mr. Racine is somewhat limited in scope. It was filed solely by the D.C. attorney general and was not joined by prosecutors in other states or U.S. jurisdictions, meaning that Mr. Racine cannot draw on the resources of other attorneys general in court. In contrast, the antitrust lawsuits by states against Facebook and Google were jointly filed late last year by dozens of attorneys general.
In addition, by filing the suit in the D.C. court instead of a federal court, any judgment or settlement would only apply to Washington, D.C.
But the move by Mr. Racine was still hailed by critics of Amazon’s size and power.
The suit “comes as momentum to break the extraordinary and dangerous power of Big Tech reaches new heights,” said Sarah Miller, executive director of the Economic Liberties Project, a progressive antimonopoly group.
Prosecutors asked the court to block Amazon from engaging in the practices it argued increased prices. They also requested that the court “remove any ability of Amazon to harm competition,” including by changing its structure.
Amazon has attracted particular attention from critics because of the sweeping nature of its business. It operates a dominant web hosting operation, a streaming platform that competes with Netflix and Hulu and expanded into brick-and-mortar grocery stores with the acquisition of Whole Foods.
But the lawsuit filed by Mr. Racine, a Democrat, concerns the core of its business: the online marketplace for outside merchants that accounts for more than half of the products it sells.
At issue is how Amazon polices the pricing of products merchants list on its website. Amazon had required sellers to offer products at the same or lower prices as they do on other websites, what is known as a “most favored nation” policy. Regulators in Europe, and later Senator Richard Blumenthal, Democrat of Connecticut, questioned the policy. In 2019, Amazon dropped it from its service agreement with sellers in the United States.
Mr. Racine’s complaint said Amazon in 2019 replaced the policy with “an effectively-identical substitute,” which it called its “Fair Pricing Policy.” That new policy, the complaint said, let Amazon “impose sanctions” on sellers whose products are offered at lower prices elsewhere, even if it costs them less to list on other platforms, including their own website.
Amazon put in place other measures to limit lower prices elsewhere. More important, it sometimes removed prominent buttons like “Buy Now” and “Add to Cart” from a product listing page, making it more cumbersome for a shopper to buy the item. Sellers say the change reduces sales. The complaint said Amazon could also banish sellers from its website entirely.
“This is a living-in-fear, all-the-time, type of event for any seller on Amazon,” said James Thomson, a former Amazon employee who helped build Amazon’s marketplace business and now advises sellers. He said there were legitimate reasons a product could cost less elsewhere. It may be cheaper to sell on a different website, for example, or a site may be liquidating product.
Mr. Thomson said he had heard from other state attorneys general asking about the same specific issues the D.C. case raised.
Some sellers respond to losing the “Buy Now” and “Add to Cart” buttons by lowering their prices on Amazon, but others raise their prices elsewhere or choose to list solely on Amazon, the largest e-commerce site in the country, to avoid losing their listings. The complaint said that “Walmart routinely fields requests from merchants to raise prices on Walmart’s online retail sales platform because the merchants worry that a lower price on Walmart will jeopardize their status on Amazon.”
Absent the policing, sellers “would be able to sell their products on their own or other online retail sales platforms for less than they sell them on Amazon’s platform,” it said.
“Most favored nation” contracts are common across industries, including the cable industry with media business partners. Mr. Racine’s office will have to prove how the price agreements harmed other sellers and were anticompetitive.
Bill Kovacic, a former chairman of the Federal Trade Commission, said the burden was on Mr. Racine to prove Amazon’s practices were anticompetitive.
“Case law is thin in this area because most suits end in settlements so if they proceed, the District will have an important role in building doctrine.”
In 2017, after scrutiny from the European Union, Amazon agreed to drop its most favored nation agreements with e-book sellers. Regulators in Europe dropped its investigation into the price partnerships but has continued its scrutiny of the company’s competitive practices. In November 2020, the E.U. charged Amazon with using proprietary data culled from third-party sources to underbid and copy rivals in its own marketplace.