Amazon Has Stranglehold on Online Retail Market, DC Says

An antitrust complaint filed by the District of Columbia’s attorney general claims the retail giant’s online marketplace puts restrictions on sellers that drive up consumer prices.

Amazon tractor trailers line up outside the Amazon Fulfillment Center in the Staten Island borough of New York last year. (AP Photo/Mark Lennihan)

WASHINGTON (CN) — Online retailer Amazon has crushed its competition by instituting a policy that can remove sellers from the platform if they offer products for less on another website, according to a complaint filed by the attorney general of the nation’s capital.

The antitrust suit filed Tuesday in the District of Columbia Superior Court claims that until 2019, business owners were required to sign an agreement with Amazon that forbade third-party sellers from selling goods on another platform at a lower price. After facing government scrutiny, the complaint states this price parity contract provision was later replaced with an “effectively-identical substitute” called the fair pricing policy — which includes banishing third-party sellers from the Amazon marketplace if they offer a better deal elsewhere.

In a statement, D.C. Attorney General Karl A. Racine said “Amazon has used its dominant position in the online retail market to win at all costs.”

“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,” Racine said. “We filed this antitrust lawsuit to put an end to Amazon’s illegal control of prices across the online retail market. We need a fair online marketplace that expands options available to District residents and promotes competition, innovation and choice.”

A representative for Amazon did not immediately respond to a request for comment.

Ejecting third-party sellers from the Amazon online marketplace can have detrimental effects to those businesses, according to the lawsuit, but this practice is only compounded by mandatory fees and charges. Some of those fees can equal up to 40% of the total price of third-party sellers’ products, the complaint states, which are then passed onto consumers through Amazon’s platform and all other online retailers.

“The anticompetitive effects of Amazon’s conduct go beyond higher prices to consumers,” the lawsuit states. “In addition to causing prices in the online retail sales market to be artificially inflated, Amazon’s actions have resulted in less choice for consumers and [third-party sellers] in the online retail sales market, suppressed innovation and reduced investment in potentially-competing online retail sales platforms.”

Racine’s complaint seeks to enjoin Amazon’s restrictions on third-party sellers in addition to restitution for harmed consumers and civil penalties against the retail giant.

When third-party sellers want to offer products on Amazon’s website, they can either pay a per-sale charge of about $0.99 or a monthly fee of $39.99. Then retailers decide whether Amazon should handle shipping, payment collection and other administrative fees.

But Amazon has considerably raised fees to third-party sellers’ sales over the past five years, according to the lawsuit. It has allegedly added an extra 11% cut from third-party sellers’ sales which, on top of other fees, pay the multibillion-dollar company a 45% total commission.

“By contrast, Amazon’s competitors in the online retail sales market charge much lower fees and costs for sellers to sell on their platforms,” the complaint states. “For example, Walmart charges no setup, subscription or listing fees, only a referral fee on each sale. [Third-party sellers] who choose to use Walmart’s Fulfillment Services program are charged a fixed monthly storage and fulfillment/delivery fees that are significantly less than what Amazon charges.”

Amazon controls 50 to 70% of the U.S. online retail sales market, compared to 38% in 2016, according to the lawsuit. Pointing a House Judiciary antitrust subcommittee investigation from 2019, the complaint notes Congress concluded Amazon’s retail dominance was durable.

“According to the House antitrust subcommittee, digital markets tend to be characterized by strong network effects, making them prone to concentration and monopolization,” the lawsuit states. “Because the value of an online retail sales platform to buyers and sellers increases as more of each of them utilize the platform, new entrants into the market find it extremely difficult to gain traction when going up against a large, well-established incumbent with hundreds of millions of buyers and sellers.”

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