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California sues Amazon, accusing it of anticompetitive behavior

The state alleged that the e-commerce giant ‘stifled competition’

California sued Amazon over antitrust concerns Sept. 14. (Michael Nagle/Bloomberg News)

California sued Amazon on Wednesday, alleging that the company caused higher prices across the state and “stifled competition.”

Amazon penalizes sellers on its site if they offer products elsewhere for lower prices, the state alleged. That makes it harder for others to compete, therefore entrenching Amazon’s market power, the state said in a press release announcing the lawsuit.

D.C. attorney general brings antitrust lawsuit against Amazon

“For years, California consumers have paid more for their online purchases because of Amazon’s anticompetitive contracting practices,” state Attorney General Rob Bonta (D) said in a statement.

Amazon spokesman Alex Haurek said in a statement that the California attorney general “has it exactly backwards” and that “sellers set their own prices” on the website.

“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,” Haurek said in a statement. “The relief the AG seeks would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law.”

Amazon hopes the lawsuit will be dismissed as a similar case in D.C. was, Haurek said. Amazon founder Jeff Bezos owns The Washington Post.

The suit comes as regulators in Washington, the states and Europe are increasingly targeting the power and influence of the largest tech companies.

Some of these efforts have faced roadblocks in the courts, including a very similar lawsuit brought by D.C. Attorney General Karl A. Racine (D) last year. That suit was thrown out by a judge this year, but Racine in August filed a notice that he would appeal the decision.

The California suit could foreshadow antitrust challenges against Amazon in Washington. The Federal Trade Commission has been investigating the company for years, and its chair, Lina Khan, is widely expected to take action against the company, following years of criticizing its allegedly monopolistic practices as an academic and congressional staffer.

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Amazon’s behavior has also come under scrutiny on Capitol Hill, where a bipartisan coalition of lawmakers has advanced bills that take aim at the way the company treats third-party sellers. Amazon, other tech companies and their surrogates have mounted an extensive lobbying campaign to bat back the legislation.

California’s suit alleges that Amazon’s actions have harmed the state’s consumers and economy. The complaint alleges that Amazon has previously misled other regulators who have scrutinized its effect on pricing.

“Amazon makes consumers think they are getting the lowest prices possible, when in fact, they cannot get the low prices that would prevail in a freely competitive market because Amazon has coerced and induced its third-party sellers and wholesale suppliers to enter into anticompetitive agreements on price,” the suit alleges.

The suit refers to contracts that Amazon signs with third-party merchants who sell items on its site. These agreements, the suit says, forbid sellers from listing items for less money on competitor sites such as Walmart, Target or even on their own websites.

“Amazon has misled consumers into believing they are getting the low prices that would prevail in a competitive market when, in fact, it has deliberately caused prices to be generally higher everywhere else than they would be absent price parity,” the complaint alleges.

These types of contracts are not inherently anticompetitive, said Herb Hovenkamp, an antitrust professor at the University of Pennsylvania Carey Law School and at Wharton. But in this case it could be, he said.

“They want to maximize business on their own platform by making sure other firms don’t get a better deal than they do,” Hovenkamp said.

European Union fines Amazon over data

Amazon’s third-party seller business is a significant source of money for the company — earning it $27.4 billion in revenue in the last quarter alone. Third-party sellers have long accounted for more than half of all items sold on Amazon.

The complaint also paints a detailed portrait of the ways that Amazon wields power over sellers, which could have implications for other antitrust cases regarding the company’s online marketplace.

Amazon sellers are extremely dependent on the revenue they gain from people buying their goods on the platform, according to the complaint. About half of Amazon’s third-party sellers generate between 80 percent and 100 percent of their revenue in the company’s marketplace, the complaint says.

“We’re stuck. We don’t have a choice but to sell through Amazon,” one merchant told investigators.

Amazon is far from alone among the tech giants in facing antitrust suits. The FTC has a pending suit against Facebook, and the Justice Department sued Google over monopoly concerns in 2020.

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