SAN FRANCISCO (Legal Newsline) - California Attorney General Rob Bonta is suing Amazon for harming consumers. Not by charging them too much, but by pushing merchants on its platform to charge the lowest prices available.
According to the new world of antitrust theory promoted mainly by Democratic politicians like Bonta, Amazon uses its dominant share of the online market to bully smaller merchants into charging higher prices everywhere else – from their own websites to Walmart – in order to preserve high rankings on Amazon.com.
It's a wholesale departure from antitrust law as it was understood and enforced by courts for decades, which focused solely on consumer harm. From Federal Trade Commission Chair Lina Khan on down, however, regulators and politicians are pursuing a different doctrine in which companies can violate the law merely by being too big, with the definition of “too big” and the economic implications of that being left mostly to the imagination.
“What it reflects is an attempt by enforcers to show they are doing something against Big Tech and increasing their popularity by taking on these companies,” said Dick Auer, director of competition policy at the International Center for Law and Economics, a research organization that advocates for free-market policies.
Bonta sued Amazon in state court in San Francisco last September, despite the fact a judge in the District of Columbia dismissed D.C. AG Karl Racine’s virtually identical lawsuit six months before. In the California case, Bonta accuses Amazon of violating California’s Cartwright Act, which prohibits “concerted activity” among sellers to raise prices.
Amazon does this, the AG claims, by charging third-party sellers on its site excessive fees which they pass through as higher prices. If they charge lower prices elsewhere, the AG’s lawsuit claims, Amazon punishes them by pushing their listings down lower on the page or removing the coveted “buy button” allowing one-click purchases.
Amazon says California is trying to punish it for ensuring customers can easily shop on price. Amazon used to include a low-price guarantee in contracts with third-party sellers but eliminated it in 2019. The company says the AGs suing it have never presented evidence it was enforced, anyway. Amazon also requires some outside companies to guarantee it a minimum profit margin before they can list products on its site, but Amazon says that policy allows marginal sellers access to its platform.
After conducting a “years-long investigation” in which it interviewed dozens of witnesses and pulled more than 1 million internal documents, Amazon said, California is pursuing an “upside-down theory” that the businesses selling products on its site raise their prices everywhere else in collaboration with Amazon.
The truth is simpler, Amazon argues: “The most obvious way” for sellers to become featured on its site is to lower their prices.
California’s claims face a key test in March, when Superior Court Judge Ethan Schulman has scheduled a hearing on Amazon’s motion to dismiss. But the company won the similar suit in D.C. – over the objections of the Biden administration – when Judge Hiram Puig-Lugo dismissed the District’s case for lack of evidence.
D.C. AG Racine, like Bonta, made broad statements in his complaint about online merchants being forced to raise their prices to list on Amazon.com but failed to cite any specific examples. The district relied upon evidence including a report in ProPublica and a letter from Conn. Sen. Richard Blumenthal to the FTC accusing Amazon of anticompetitive practices.
“The District recited conclusory statements while failing to identify information which supported the conclusions it reached,” Judge Puig-Lugo wrote.
California similarly states Amazon controls the “relevant market,” which it defines as online sales of products for home delivery, excluding bricks-and-mortar retailers selling the same goods such as Walmart, Target, Best Buy and Costco.
“The overwhelming direct evidence of Amazon’s market power obviates the need for further analysis,” the AG states in his suit.
Amazon argues California is trying to twist antitrust law by placing it on the same plane as third-party merchants on its site to create a picture of so-called “horizontal” collusion. But a federal court looking at similar claims ruled that Amazon is in a “vertical” arrangement with sellers, selecting the conditions under which they can offer products on its platform. And courts for decades have protected such arrangements against antitrust lawsuits, Auer of ICLE said, most commonly in minimum-price agreements manufacturers impose on retailers.
Courts have upheld minimum-price rules because they force retailers to compete on service instead of price, Auer said, reducing the risk customers will come away unsatisfied after a purchase. Amazon argues its policy of promoting low-price merchants is also a reasonable way to serve consumers looking for the best deal.
Amazon’s critics point to European antitrust law, which is less consumer-centric and has prohibited online merchants from offering low-price guarantees. Unfortunately, Auer said, studies of markets with and without such bans show they didn’t actually impact the prices consumers pay.
California has little chance of winning on claims the thousands of merchants selling products on Amazon.com are engaged in a vast horizontal conspiracy to raise prices everywhere else, Auer said. And after all the investigating AG Bonta’s office did, he said, one would expect more concrete evidence.
“If you had a smoking gun, or several smoking guns, you’d put them in the complaint,” he said.