E-commerce giant Amazon was slapped with a lawsuit from the state of California on Wednesday, over allegedly violating anti-trust laws by penalizing third-party merchants for selling their products at lower prices on competing websites.
According to the Wall Street Journal which obtained a copy of the lawsuit filed in San Francisco Superior Court, Attorney General Rob Bonta alleged Amazon forces third-party merchants into agreements penalizing them in the event they offer products at reduced prices on rival sites such as Target or Walmart. For those sellers failing to comply, the e-commerce giant deliberately places their products lower in search results, sometimes removes them from the site’s “buy box,” or eliminates the products entirely.
Likewise, the complaint also accuses Amazon of coercing wholesalers into similar agreements where they face penalties in the event Amazon cuts prices to match competitors and profit margins slip below a certain threshold. In fact, wholesalers are sometimes forced to compensate the e-commerce company if rival online retailers reduce their products’ prices. And, given Amazon’s strong oligopolistic dominance in the space, the third-party merchants and wholesalers are often left with no choice but to comply with the demands.
“Amazon coerces merchants into agreements that keep prices artificially high, knowing full-well that they can’t afford to say no,” said Bonta. “Many of the products we buy online would be cheaper if market forces were left unconstrained.” California, which is home to the largest population and economy, strongly influences how major companies conduct their operations in the US. The suit is requesting the court to bar Amazon from continuing the anti-competition practices, and appoint a watchdog to ensure the company complies. In addition, California is also pursuing damages caused to the state’s economy, as well as $2,500 for every account the court proves Amazon violated California’s civil and professional code.
Information for this briefing was found via the WSJ. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.