Amazon Faces an Antitrust Suit Filed by California’s State AG Bonta
The State of California sued Amazon earlier this month for allegedly violating antitrust laws resulting in “artificially high prices” on the marketplace’s website. According to California’s State Attorney General Rob Bonta, Amazon prevents sellers from promoting prices on other platforms or even their own website for lower prices. If merchants do not comply with this agreement, they risk losing their spot on Amazon’s search engine or may be removed from the site completely.
Amazon has been the go-to store for many online shoppers especially after COVID restrictions forced in-person shopping to grind to a halt. Since 2020, Amazon has been the one-stop-shop for online purchases and saw its profits triple. As a result of its widespread appeal, “Amazon coerces merchants into agreements that keep prices artificially high, knowing full-well that they can’t afford to say no,” according to Bonta.
With these contracts from merchants, Amazon effectively sets the prices across the market and is able to inflate them, which gives the company a monopoly over the market and competition. Amazon first came to be a dominant force in the industry by offering competitive rates and slowly gaining a foothold in the world of online sales.
After developing into a modern mega-corporation, Amazon now boasts over 200 million Amazon Prime subscribers who pay just to receive lower shipping costs and retail prices. In total, Amazon receives $26 billion in annual revenue from retail subscription fees alone. California alleges that since dominating the market, Amazon is wielding its power against the better interests of consumers who are already grappling with record-high inflation.
Merchants have been feeling the pressure from Amazon for years. In a 2019 Bloomberg article, Jason Boyce remarked that his basketball hoop company which had enjoyed being featured on Amazon for years had to pay more for advertising than they did in earlier years because Amazon was creating similar products as and undercutting his prices.
For several years now, Amazon has been under investigation by the Federal Trade Commission (FTC) who has the responsibility to break up monopolies and keep the market from becoming too lopsided. When companies are able to fix prices in a market, they no longer need to compete with others. Such a result hurts consumers because competition in a market forces companies to either offer better prices, quality or customer service.
Because Amazon is such a large force in the industry with millions of dedicated customers, it can eschew all responsibilities to sellers for maintaining quality control. Amazon acts mostly as a platform for merchants who are liable for damaged products or products incorrectly advertised. Moreover, Amazon provides consumers sub-par customer service. Calling Amazon after clicking through the voice recognition service can put a customer on hold with a representative for hours.
Poor service, questionable quality and rising prices for consumers are all hallmarks of a “vicious anti-competitive cycle,” according to Bonta who filed the lawsuit in an attempt to protect consumers in the state, have the platform list products as reasonable prices and offer better customer service.