Attorney General Bonta Reveals Additional Evidence of Antitrust Violations in Lawsuit Against Amazon

OAKLAND – California Attorney General Rob Bonta today revealed additional evidence that Amazon is blocking price competition in violation of state antitrust laws following the Superior Court's decision to unredact portions of the state's complaint.  In September, Attorney General Bonta filed a redacted complaint against Amazon alleging that the company stifled competition and caused increased prices across California through anticompetitive contracting practices. The Superior Court has now ordered many of the redactions removed from that complaint, revealing additional insight into the state’s claims against Amazon.

“As California families struggle to make ends meet, we’re in court to stop Amazon from engaging in anticompetitive practices that keep prices artificially high and stifle competition,” said Attorney General Bonta. “There is no shortage of evidence showing that the ‘Everything store’ is costing consumers more for just about everything. Amazon coerces merchants into agreements that keep prices artificially high, knowing full well that they can't afford to say no. 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 and costing consumers more at checkout across California. We won't stand by while Amazon uses coercive contracting practices to dominate the market at the expense of California consumers, small business owners, and the economy.” 

In the complaint, Attorney General Bonta alleges that in order to avoid competing on prices with other online e-commerce sites, Amazon requires merchants to enter into agreements that severely penalize them if their products are offered for a lower price off-Amazon. These agreements thwart the ability of other online retailers to compete, contributing to Amazon's dominance in the online retail marketplace and harming merchants and consumers through inflated fees and higher prices. Amazon has orchestrated the substantial market power it now enjoys through agreements at the retail and wholesale level that prevent effective price competition in the online retail marketplace. 

Highlights from the newly revealed portions of the complaint include:

Continuation of Amazon’s Practice of Preventing Merchants from Offering Lower Prices Off Amazon Even After Removal of Contractual Provision 

Despite Amazon’s removal of the “Price Parity Provision” in its Business Solutions Agreement (BSA), which explicitly required that merchants not offer their products for a lower price off Amazon, Amazon continued to impose and enforce this requirement, as illustrated in the newly unredacted portions of the complaint: 

5. But despite removing that language, Amazon continued to interpret and apply other provisions of its BSA to mandate the same price parity agreement from third-party sellers.  As an internal Amazon document put it, despite “the recent removal of the price parity clause in our BSA . . . our expectations and policies have not changed.” 

14. [I]nternal Amazon documents confirm that just months after Amazon eliminated the Price Parity Provision from its BSA, Amazon planned an expansion of the penalties for lower prices off Amazon.  An Amazon Director observed that these expanded penalties “may generate pushback given recent positive press about our change to remove the previous price parity clause which required 3P [third-party] Sellers to price their products on Amazon lower than they price them anywhere else.”  In other words, Amazon claimed to antitrust enforcers that it was no longer enforcing price parity, but it continued to do just that.  Amazon even anticipated that “media and selling partners may claim the removal of the clause was not only trivial but a trick and an attempt to garner goodwill with policymakers amid increasing competition concerns.”

Amazon’s Power Over Merchants

Amazon has, and exercises, tremendous power over the merchants on its site. The following excerpt from the unredacted complaint demonstrates merchants’ concerns over the power Amazon has over their businesses and well-being, and Amazon’s knowledge of this power:

68. One seller reported to Amazon, “I still wake up in fear every day that my account or a key ASIN [Amazon Standard Identification Number] could be suspended.”  Amazon admits in internal documents that “Sellers live in constant fear that their accounts will be suspended, or that top selling products will be removed, putting their businesses and livelihoods at risk.”

The Effects of Amazon’s Practices on Prices

Without basic price competition and different online sites trying to outdo each other with lower and lower prices, prices artificially stabilize at levels higher than would be the case in a competitive market. This occurs not because Amazon competed successfully or because it is a more efficient retailer and marketplace, but because Amazon forbids it through coerced agreements. The following excerpts from the unredacted complaint include direct statements from Amazon representatives demonstrating Amazon’s knowledge of the impact its policies have on prices and the marketplace:

150. As a result of Amazon’s price parity agreements and enforcement, sellers maintain higher prices on their own websites, maintain higher prices on other marketplaces and, in the case of brands that manufacture their own products, charge higher wholesale prices to other retailers and set higher price floors for resale.  Indeed, an internal Amazon memo documented, “the Brand team has received complaints that this policy encourages Sellers to raise their prices on competitor websites.”

156. In fact, receiving a notification that Amazon has suppressed a third-party seller’s offer from the Buy Box generally does not cause the seller to lower its offer on Amazon.  An Amazon Pricing Review internal memo from 2017 confirmed that Buy Box suppression “has not led Sellers to lower their prices” and “has not motivated Sellers to reduce prices” and has instead led to customer frustration.  As Amazon later admitted internally, “the suppression we are doing of non-price-competitive buyboxes for sellers . . . has little impact on lowering prices but does . . . protect our price perception.”  A colleague responded, “Frankly, I hate it as this is about perception, not lower prices.” 

163. [I]n January 2019, a Marketplace seller complained to Amazon, “the problem is that we’re being asked to take our prices down [on Amazon] to match our own [website] store.”  Amazon’s VP of Pricing reminded the seller’s account manager that it could be unsuppressed if the price on the other website changed, and the seller should “control prices across all his channels.  . . .  [Y]ou might want to ask him to check if his sales on other sites directly or through distributors is putting him and us at a relative competitive disadvantage.  . . .  He might get the hint. :)”.  The hint was straightforward: raise your prices elsewhere if you want to make sales on Amazon. 

195. In fact, Amazon has a name for the tactics its wholesale suppliers employ with other retailers to prevent discounting: “channel management” or “channel optimization.”  As Amazon documented with respect to a different Kitchen supplier, “we will drive channel optimization to increase CPPU” [i.e., profitability].  “Channel optimization” is Amazon’s naming gloss on the anticompetitive practice of suppliers imposing or enforcing minimum advertised price or resale price maintenance policies on, and withholding their products from, retailers that compete with Amazon, so that there are no lower prices in the market for Amazon to match.

Amazon’s Market Power as Evidenced by Sponsored Items in Consumer Searches

Amazon also enjoys market power over consumers, as evidenced by its imposition of ads on consumers it knows they do not want. The following excerpts from the unredacted complaint include examples of consumer feedback received by Amazon and communications by Amazon representatives demonstrating Amazon’s knowledge of the impact on the consumer experience of its paid advertising policies for Amazon merchants.

76. Amazon has received numerous complaints voicing customers’ frustration with ads that are not relevant to their shopping intent and have made the experience of shopping on Amazon worse.  For example, Amazon collected the following feedback from customers through its Quarter 3 2019 Shopper Perceptions of Ads Research Program:

• “I can’t see how amazon needs that much advertising.  Amazon is not taxed, makes huge profits every year, yet they waste my time w/ products that are not relevant to my search.”
• “I feel like when the items are showing up first are advertisements, I’m nervous these don’t have my best interests at heart.  I would rather top rated or most affordable items show up first and advertised ones show up halfway down.”
• “I seem to have to scroll for pages before I reach the actual real search results that I was looking for.”
• “They just take up room for items that I am looking for.”
• “It’s starting to feel like there are more sponsored ads th[a]n listed products.”
• “I feel that ads are being intentionally hidden in plain sight to dupe customers into purchasing targeted products.”
• “I dislike this entire aspect of Amazon’s presentation as it wastes screen real estate and makes shopping harder.  Amazon makes a tidy profit on the sale of the items themselves, double dipping for advertising is consumer hostile.”
• “Just don’t like the top or best recommendations being based on advertisements.” 

78. Internal Amazon emails and memos document this deterioration in quality: “the True Organic content is squeezed out from the top organic positions due to ads.”  Amazon’s chief economist himself bemoaned the “secondary impacts on customer experience at Amazon stores” of ads to the extent they “reduce selection, are not relevant to the customer’s search, and/or lead to increases in prices.”

A copy of the complaint with the newly revealed material is available here.