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California Sues Amazon for Allegedly Inflating Prices to ‘Stifle Competition’

The lawsuit was announced on Wednesday by California Attorney General Rob Bonta.

Amazon logo Kazuhiro Nogi/Getty Images

California Attorney General Rob Bonta announced on Wednesday a lawsuit against Amazon alleging that the company “stifled competition” and caused increased prices across the state through anticompetitive contracting practices.

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, Bonta noted. In today’s lawsuit, Bonta alleged that 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.

“For years, California consumers have paid more for their online purchases because of Amazon’s anticompetitive contracting practices,” Bonta said in a statement. “Amazon coerces merchants into agreements that keep prices artificially high, knowing full well that they can’t afford to say no.”

California’s new suit went on to state that 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. “Merchants must agree not to offer lower prices elsewhere—including competing sites like Walmart, Target, eBay, and, in some cases, even on their own websites—and to accept drastic penalties like loss of the ‘Buy Box’ on Amazon or to ‘compensate’ Amazon if other online stores do lower their prices.”

The complaint added that merchants that do not comply face sanctions such as less prominent listings and even the possibility of termination or suspension of their ability to sell on Amazon.

In today’s lawsuit, Bonta alleged that these price parity agreements have expanded and entrenched Amazon’s market power as an online retail store, impeded rivals, and resulted in pricing above competitive levels in California in violation of the Unfair Competition Law and the Cartwright Act.

The Attorney General’s lawsuit seeks an order from the San Francisco Superior Court that stops Amazon’s anticompetitive behavior and recovers the damages to California consumers and the California economy.

Specifically, the lawsuit asks the court to prohibit Amazon from entering into and enforcing its anticompetitive contracts that harm price competition; require Amazon to affirmatively notify vendors that it does not require sellers to offer prices on par with off-Amazon prices; appoint a court-approved monitor to ensure Amazon’s compliance with the court’s order; order damages to compensate for the harms to consumers through increased prices; and order Amazon to return its ill-gotten gains and pay penalties to serve as a deterrent to other companies contemplating similar actions.

“With today’s lawsuit, we’re fighting back. We won’t allow Amazon to bend the market to its will at the expense of California consumers, small business owners, and a fair and competitive economy,” Bonta added.

“Similar to the D.C. Attorney General—whose complaint was dismissed by the courts—the California Attorney General has it exactly backwards,” an Amazon spokesperson told FN. “Sellers set their own prices for the products they offer in our store. Amazon takes pride in the fact that we offer low prices across the broadest selection, and like any store we reserve the right not to highlight offers to customers that are not priced competitively. The relief the AG seeks would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law. We hope that the California court will reach the same conclusion as the D.C. court and dismiss this lawsuit promptly.”

This is the latest legal trouble for the online retail giant. In July, the UK’s Competition and Markets Authority (CMA) announced it was investigating Amazon’s practices affecting sellers on its UK Marketplace which “may be anti-competitive and could result in a worse deal for customers.”

According to the CMA, its investigation will consider whether Amazon has a dominant position in the UK and whether it is abusing that position and distorting competition. This is in conjunction with a current European Commission probe looking into similar concerns, which does not cover ongoing issues affecting the UK now that it has left the European Union.

The CMA also has an open investigation into Amazon and Google, under consumer protection laws, over concerns that they have not been doing enough to combat fake reviews on their sites.

In June 2020, Amazon found itself at the center of two antitrust probes in California and Washington states, where investigators are looking into whether it had used its marketplace to benefit its own products versus those of third-party merchants.

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