Amazon punishes seller for 5 cent price cut on competitor's site: FTC Case

By Spencer Soper

About once a week, Bernie Thompson gets a “take action” email from Amazon.com Inc. Online sellers like Thompson dread these messages because it means the e-commerce giant has discovered one of their products is selling for a lower price on a competing website. Unless he adjusts the price, Thompson says, Amazon could make his merchandise virtually invisible to shoppers.
 

Such emails are at the heart of the antitrust lawsuit the US Federal Trade Commission filed on Tuesday. The agency alleges that Amazon uses its online dominance to prevent would-be competitors from luring customers away with discounts — indirectly pushing up prices for consumers. In the complaint, the FTC says the company buries products in search results unless merchants comply with its “take action” demands. 

Amazon has vowed to challenge the FTC lawsuit in court, adding that it “radically” departs from the agency’s mission of protecting consumers.

Earlier this month, Thompson received an email alerting him that his company, Plugable Technologies, was offering a multiport USB adapter for $39.95 somewhere online when the price on Amazon was a nickel more. The five-cent discrepancy was enough to trigger the email, a jargon-filled missive that would baffle most people. 

“Below is a list of product(s) in your catalog that are not currently eligible to be the Featured Offer because they are not priced competitively compared to prices for those products from retailers outside Amazon,” states the email, which provides a link Thompson can click to change his price on Amazon. “If you’d like to restore Featured Offer eligibility visit Pricing Health within the Pricing section of Seller Central to lower your price on Amazon.”

In this instance, Thompson lowered his price on Amazon by a nickel. In other cases, he either raises his price on competing sites or just lets his inventory sell out without replenishing it so Amazon no longer detects a price difference.

In its complaint, the FTC says Amazon monitors prices across the web with such vigilance that competitors never have a chance to emerge. Even if competing businesses charge merchants less to sell on their platforms, Amazon’s actions discourage sellers from passing along the savings to shoppers. These “anti-discounting tactics” upend “the normal give-and-take process of competition,” the agency says. The FTC isn’t the first to take aim at such practices. California sued Amazon last year alleging its policies led to “artificially high prices” for consumers.

Influencing prices on other sites is one of several ways Amazon stifles competition and hurts consumers, according to the FTC. Other practices include selling the most prominent placement on the web store to the highest bidders in advertised slots and giving preferential treatment to merchants who pay Amazon additional fees for warehouse storage, packing and delivery services. Those practices all degrade the experience for shoppers, the agency says.

In a blog post, General Counsel David Zapolsky said the agency’s allegation that the company’s pricing policy leads to higher prices is wrong and backwards. “If they were successful in this lawsuit,” he wrote, “the result would be anticompetitive and anti-consumer because we’d have to stop many of the things we do to offer and highlight low prices — a perverse result that would be directly opposed to the goals of antitrust law.”

Longstanding Complaints

Merchants have complained for years that Amazon forces them to increase their prices on other websites, a practice Bloomberg first reported in 2019. Several sellers provided detailed evidence to federal investigators in the hopes that the government would crack down. In the meantime, they simply did what Amazon asked.

Chuck Gregorich, a Wisconsin businessman who sells fire pits and outdoor furniture on Amazon, said he receives pricing alerts from Amazon regularly. It’s often related to a coupon on some other marketplace he wasn’t even aware of, so he’ll call the competing outlet and get them to raise their price to restore his Amazon sales. He could afford to sell his products for less on competing sites, but deliberately keeps prices standard across the web in part to honor Amazon’s pricing policies.

Gregorich also uses Amazon’s logistics services for hundreds of his products even though there are lower cost alternatives elsewhere. In its complaint the FTC alleges that if sellers like Gregorich don’t use Amazon’s warehousing and delivery services, the company will make it harder to find their products on its site. 

Gregorich isn’t optimistic that the agency will influence Amazon’s behavior. “I’m not expecting anything to change as a result of the FTC case,” he said. “Consumers are conditioned to buy when they see the Amazon Prime badge and I don’t see the government changing consumer behavior.”

Still, some merchants believe years of pressure from the FTC and other government agencies, as well as stepped up competition, have already made Amazon more seller friendly. Andrew Morgans, who has sold apparel, pet supplements and a variety of other products on Amazon for the past 12 years, said Amazon’s practices are common throughout the retail industry.

“I’m sure there’s things happening behind the scenes that give Amazon some kind of preference, but all businesses do that,” said Morgans, who also runs Marknology, a Kansas City-based consulting firm that helps 50 clients sell on the site.

The FTC action against Amazon doesn’t cite specific remedies but calls for the company to end what it calls illegal conduct. Thompson, once lionized by Amazon founder Jeff Bezos in a letter to shareholders as an example of a small business the company has helped prosper, said ending the current pricing practices would encourage competition by letting rival marketplaces differentiate themselves with discounts.

“Nobody has a shot to take on Amazon while Amazon uses its market leverage to arm twist all the brands and suppliers to always have their lowest prices on Amazon,” Thompson said. “Price is the heart of Amazon’s customer flyhweel, and they’re willing to push hard to maintain that.”