Amazon’s Pricing Policy Caused Consumers to Overpay by $55B to $172B, Class Action Claims

A proposed class action out of Washington alleges Amazon.com, Inc. has cheated consumers out of an estimated $55 billion to $172 billion in savings by blocking third-party sellers from charging lower prices for the same goods on other sites.

Alleging violations of federal antitrust law and consumer protection statutes, the 53-page complaint claims Amazon’s prices are not the product of healthy competition but are instead the result of an anticompetitive “fair pricing” policy through which the online retailer effectively threatens to punish third-party sellers who undercut the prices listed on its platform.

Amazon’s conduct, the suit alleges, not only forces consumers to pay “supracompetitive” prices for 600 million third-party products, but also allows the retailer to reap the benefits of an illegal monopoly over the entire retail e-commerce industry, or at least certain sectors.

“Online retail should be ‘the most competitive industry in the world,’” the complaint alleges. “But Amazon’s anticompetitive pricing policy severely restrains price competition by imposing a price floor for products sold through retail e-commerce channels other than the Amazon.com platform.”

The lawsuit claims absent the allegedly unlawful policy, third-party sellers would be able to charge significantly lower prices and force Amazon to compete fairly.

From “Price Parity” to “Fair Pricing”

Described in the lawsuit as “the world’s largest online retailer,” Amazon offers a “two-sided platform” that serves both customers looking to purchase products and third-party sellers who register on the Amazon Marketplace to sell goods.

Until recently, the case explains, the Amazon Services Business Solutions Agreement (BSA), to which registered third-party Amazon sellers must agree, contained a “price parity” provision in the form of a “platform most favored nation” (PMFN) clause. According to the case, the clause specified that sellers must ensure that “the purchase price and every other term of sale” for items sold on Amazon must be “at least as favorable” to Amazon users as “the most favorable terms” available on the seller’s other sales channels. In other words, the lawsuit explains, sellers were prohibited from offering their products anywhere else for a price that was lower than their Amazon.com price.

It wasn’t until the Federal Trade Commission began looking into Amazon’s potentially anticompetitive practices last March that the retailer withdrew the PMFN provision, the case says. But rather than provide the “watershed moment” that third-party retailers were hoping for, the withdrawal of the controversial provision only led to the implementation of Amazon’s “fair pricing” policy, the suit alleges.

The new policy has essentially the same effect as Amazon’s PMFN clause, according to the lawsuit. Under the “fair pricing” policy, the suit explains, Amazon states that it “regularly monitors the prices of our items on our marketplaces” and if it discovers “pricing practices” that “harm[] customer trust,” the retailer can “remove the Buy Box, remove the offer, suspend the ship option, or, in serious or repeated cases, suspend[] or terminat[e] selling privileges.”

One of these so-called “harmful” pricing practices, the case alleges, is to set a “significantly higher” price for a product than the recent prices offered “on or off Amazon.” To put it even more clearly, the provision allegedly states that “[a]ny single product or multiple products packages must have a price that is equal to or lower than the price of the same item being sold by the seller on other sites or virtual marketplaces.”

In effect, the lawsuit argues, Amazon’s new policy is “not significantly different” from the former PMFN policy that drew the attention of regulators.

Class Action Claims “Fair Pricing” Policy Destroys Competition

The lawsuit notes that approximately 80 percent of Amazon’s third-party sellers also sell their products on competing retail websites such as eBay, Walmart, or their own websites. According to the case, the cost of selling through these alternative avenues is significantly lower than selling on Amazon.com due to the defendant’s various fees, including a roughly 15-percent commission, per-item or monthly subscription fee, and $5 or 20-percent refund fee.

But where competition in a healthy market would normally force Amazon’s prices down, the lawsuit points out that the opposite has occurred.

“It costs less to sell on eBay or the sellers’ own websites,” the complaint reads, “but because of Amazon’s anticompetitive price policies, its third-party sellers are prevented from lowering their prices to online customers reached outside the Amazon.com platform.”

Since sellers are barred from reducing their prices on other sales channels, the extra cost of doing business with Amazon is baked into their prices across the board, the suit alleges.

One seller notes in the lawsuit that a $150 product sold on Amazon would generate the same profit for his company as the same item sold for $37 less on the company’s website.

“Were it not for Amazon, this item would be $40 cheaper,” the seller noted. “And this is how Amazon’s dominance of the industry hurts consumers.”

Noting that Amazon’s sales account for approximately 50 percent of all retail e-commerce sales in the United States, the case claims the company is on the verge of obtaining monopoly power in the e-commerce market, if it hasn’t done so already. According to the suit, Amazon’s anticompetitive conduct has created a “price floor” that has caused consumers to overpay by as much as $172 billion for “virtually all products offered for sale in the U.S. retail e-commerce market.”

Citing potential violations of federal antitrust law and multiple state consumer protection laws, the lawsuit contends that consumers will continue to be injured by Amazon’s conduct absent the court’s intervention.

Who Does the Lawsuit Look to Cover?

The suit seeks to cover anyone who, on or after March 19, 2016, purchased through “any other retail e-commerce channel” in the United States besides Amazon.com one or more products that were also offered for sale by third-party sellers on Amazon’s platform.

How Do I Join the Lawsuit?

Typically, you don’t need to do anything to join a class action lawsuit. If the case settles, class members should receive notice of the settlement with instructions on what to do next.

In the meantime, you can keep up with class action news and updates by signing up for ClassAction.org’s newsletter here.