Last week, California Attorney General Rob Bonta filed a civil antitrust lawsuit against Amazon, alleging that Amazon stifles competition which causes inflated prices across the state through its behavior. Specifically, Bonta said Amazon violates California’s Unfair Competition Law and Cartwright Act. Amazon requires retail and wholesale merchants to sign coerced agreements that penalize them severely if they sell their products on other websites for a lower price than they are available on Amazon.com. Bonta said this makes it difficult for merchants to fairly compete in the digital marketplace. This also causes prices to be inflated across the board, giving Amazon an unfair advantage over other retailers.

“For years, California consumers have paid more for their online purchases because of Amazon’s anticompetitive contracting practices,” said Bonta in a September 14, 2022 news release. “Amazon coerces merchants into agreements that keep prices artificially high, knowing full well that they can’t afford to say no. With other e-commerce platforms unable to compete on price, consumers turn to Amazon as a one-stop shop for all their purchases. This perpetuates Amazon’s market dominance, allowing the company to make increasingly untenable demands on its merchants and costing consumers more at checkout across California.”

“The reality is: Many of the products we buy online would be cheaper if market forces were left unconstrained. With today’s lawsuit, we’re fighting back. We won’t allow Amazon to bend the market to its will at the expense of California consumers, small business owners, and a fair and competitive economy,” Bonta added.

Amazon’s reach

Bonta said that Amazon has more than 160 million Prime members across the country with 25 million in California alone. Because of this broad reach, Bonta said Amazon is a “must-have distribution channel” for online merchants and third-party sellers. He also said that the total cost to sell on Amazon exceeds the cost of selling on other sites. Amazon has a dominant market position, and merchants are beholden to Amazon.

If merchants offer lower prices on other sites, they can lose the “Buy Box” feature on Amazon’s site, they may have to compensate Amazon for losses if other online stores lower prices, they may lose prominent listings on Amazon.com, and they could potentially be terminated or lose the opportunity to sell on the site.

“Amazon’s market power leaves merchants with few options other than to accede to its demands. Amazon can — and has — raised its prices and reduced the quality of its offerings, while maintaining almost all of its merchants and customers. Amazon has used this market power to raise its fees to sellers,” said the news release.

Remedies sought

In his lawsuit, the California attorney general asked for the following remedies:

• Prohibit Amazon from entering into and enforcing such coerced agreements that undermine price competition
• Require Amazon to affirmatively notify merchants that it does not require sellers to offer prices on part with prices for their products on other sites (e.g., Walmart, Target, etc.)
• Appoint a court-approved monitor to ensure that Amazon complies with the order
• Order damages be paid to compensate for the harm done to consumers through inflated prices
• Order Amazon to return its “ill-gotten gains” and pay penalties to deter Amazon and other companies from engaging in such anticompetitive behavior in the future

A similar case was brought by the attorney general of the District of Columbia. The case was dismissed due to a lack of evidence, reports The New York Times.

“Similar to the D.C. attorney general — whose complaint was dismissed by the courts — the California attorney general has it exactly backwards,” Alex Haurek, an Amazon spokesman, said in a statement. “Sellers set their own prices for the products they offer in our store.”

Insider Take

The 84-page redacted complaint by the California attorney general is thorough in its allegations, and it seems intent on shedding light on what the state believes are competitive injustices at many levels. We expect Amazon to formally deny the allegations and for a battle to ensure both in the Superior Court of the State of California, County of San Francisco, and in the court of public opinion. Even if California prevails and Amazon is required to pay penalties and change its business practices, the bottom line is that the company remains a retail behemoth with significant resources. Even penalties in the billion-dollar range are unlikely to put a dent in Amazon’s dominant market position.