Washington, DC Democrat Attorney General Karl Racine sued online retail giant Amazon. Specifically, he accused the company of monopoly practices, including unfairly inflating prices and stifling competition.
Filed in DC Superior Court last Tuesday, Racine alleges that Amazon violates the city’s Antitrust Act.
Speaking to reporters, Racine said that Amazon continues to illegally abuse and implement monopoly practices throughout the years.
It controls prices across the online retail market with one-sided agreements favoring itself. The lawsuit focuses on the restrictions Amazon imposes on third-party sellers when they want their products listed on Amazon's marketplace.
“Third-party sellers have to agree that they will not offer their products anywhere else online, including their own websites, for a lower price than on Amazon,” Racine said.
In fact, traders have a name for this monopolistic practice: “most favored nation” agreements. Racine argues that these agreements raise prices for consumers.
It does so by imposing an artificially high price floor. In fact, Amazon's fees can take up to 40% of a product’s price.
Higher Prices Across The Entire Retail Market
According to court filings, these fees directly result in higher prices across the entire retail sales market. Sellers are bound by their agreement with Amazon not to price their products lower anywhere else.
Consequently, this results in Amazon getting a tight grip on the online retail market. “Amazon is estimated to have between 50 to 70% of the market share of the online retail sales market.
By contrast, the next two largest retail platforms, Walmart.com and eBay, have only around 5% of the market each,” Racine said.
According to the lawsuit, Amazon explicitly prohibited US sellers from offering their products at a lower price or better terms elsewhere online.
However, this changed in 2019, when Amazon removed that policy but replaced it with what they called a new Fair Pricing Policy.
Now, the lawsuit contends that the new policy is an “effectively identical substitute. Meanwhile, Racine said the DC lawsuit hopefully will help put a stop to these monopoly practices.
Amazon Denies The Allegations
Meanwhile, Amazon released a statement Tuesday denying the allegation. Racine “has it exactly backward – 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 online retail company also said that the relief the lawsuit sought will create an impact. Currently, the relief includes structural changes, a corporate monitoring system, and penalties and damages. Imposing all these will force the company to feature higher prices to customers.
Does Amazon’s Platform Benefit Consumers?
Many analysts agree with Amazon’s rebuttal. “If there was an obvious antitrust problem for Amazon, that lawsuit would have been filed a long time ago.
The fundamental problem for antitrust hawks is that Amazon’s third-party seller platform benefits consumers,” said Robert Kaminski, an analyst with research firm Capital Alpha Partners.
On the other hand, Senator Richard Blumenthal (D-CN) issued a statement supporting Racine’s suit. He said he regrets that federal regulators failed to act sooner.
Another supporter is Alex Petros, the policy counsel of Public Knowledge, an advocacy group that favors increased regulation of large tech platforms.
Petros said that the lawsuit has merit. “Consumers are paying more than they should for what they buy online as a direct result of Amazon’s conduct,” he said.
Watch the Bloomberg Technology video reporting that Amazon sued by Washington DC Attorney General in Antitrust Suit Over Pricing:
Do you agree with the lawsuit that says Amazon uses monopoly practices to keep prices higher? Do you think consumers are paying too much when buying online retail?
Let us know what you think about Amazon and its online retail strategy. Share your comments below.
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