Following a recent investigation by the attorney general of Washington, Amazon was ordered to pay $2.25 million and permanently shut down its “Sold by Amazon” program. Fundamentally, it was found that the program was based on price-fixing.
In a recent statement issued by Washington’s attorney general Bob Ferguson it stated that “Consumers lose when corporate giants like Amazon fix prices to increase their profits. Today’s action promotes product innovation and consumer choice, and makes the market more competitive for sellers in Washington State, and across the country.”
The “Sold By Amazon” program essentially worked like this;
Amazon contacted a third-party seller, and an agreement on a minimum price for an item would be settled upon. If Amazon sold the item for more, the profits would be split. It’s quite like buying wholesale items, and then reselling them. But due to how Amazon presented the items in it’s store, that’s not quite what occurred. Amazon ended up increasing the price of the items to match other retailers, and prevented sellers from offering discounts. As a result, buyers were frequently pushed to purchase Amazon’s own brands.
For the vast majority of the remaining products enrolled in the “Sold by Amazon” program, the prices balanced at exaggerated high levels.
As such, when the prices were increased, some sellers saw a noticeable drop in their profits from certain products. Due to these price increases, and the way the products were advertised, more customers opted to buy Amazon’s own brand. The end result was that Amazon was able to maximize its own sales, regardless of whether consumers paid a higher price for products enrolled in the “Sold by Amazon” program, or if they decided to buy the same products offered through Amazon by third-party venders.
However, for the third-party venders, and sellers, the program didn’t seem to play out fairly. Amazon is a store, but since it also sells its own goods and outside goods; it’s also a competitor with the third-party sellers in its own store.
According to Ferguson, that practice is in violation of antitrust laws, and a clear conflict of interest. Ferguson further explained that two competitors making a secret agreement to control the cost of goods, is a pretty clear example of price fixing.
Amazon disagreed, saying this program was straight forward and good for everyone, especially it’s customers. Despite that stance, they still chose to shut the program down claiming “business reasons unrelated to the AG’s investigation.” In a recent statement from Amazon, reported to TechCrunch, they stated “While we strongly believe the program was legal, we’re glad to have this matter resolved.”
Was it just coincidence then, that a program that had been steadily inclining since 2018 would be shut down by Amazon at the same moment that antitrust investigations began in March 2020?
Regardless, rather than battle in court, Amazon has agreed to pay $2.25 million to the Antitrust Division, and has agreed to not reactivate the program in any way in the future.