Amazon, an American leading e-commerce and technology company, has been asked to pay a fine of $2.5 million for price-fixing and ordered to shut down its ‘Sold By Amazon’ program by the attorney general of Washington.
On Wednesday, Bob Ferguson, Attorney General of Washington, announced that “as a result of his office’s price-fixing investigation, Amazon will shut down the “Sold by Amazon” program nationwide.”
Explaining the ‘Sold by Amazon’ program and how the leading brand fix prices of items, Ferguson said Amazon lured third-party sellers on its platform to join the ‘Sold by Amazon’ program by assuring them that they would receive at least an agreed-upon minimum payment for sales of their consumer goods in exchange for their agreement to stop competing with Amazon for the pricing of their products.
Consequently, if sales exceeded the negotiated minimum payment, Amazon and its competitors split the surplus proceeds amongst themselves. For example, if a seller and Amazon agreed to a $20 minimum payment and the item sold for $25, the seller would receive the $20 minimum price and share the $5 additional profit with Amazon, in addition to any fees.
The “Sold by Amazon” program resulted in prices for some products increasing when Amazon programmed its pricing algorithm to match the prices that certain external retailers offer to online consumers.
As a result, when prices increased, some sellers experienced a marked decline in the sales and resulting profits from products enrolled in the program. Faced with price increases, online customers sometimes opted to buy Amazon’s own branded products — particularly its private label products. This resulted in Amazon maximizing its own profits regardless of whether consumers paid a higher price for sales of products enrolled in the “Sold by Amazon” program or settled for buying the same or similar product offered through Amazon.
Prices for the vast majority of the remaining products enrolled in the “Sold by Amazon” program stabilized at artificially high levels. This is because Amazon programmed its pricing algorithm to maintain the seller’s pre-enrollment price as the price floor. This meant participating sellers had limited, if any, ability to lower the price of their products without withdrawing the product’s enrollment in the Sold by Amazon program.
For example, while sellers were once able to offer price discounts on their products, Amazon subsequently prevented many sellers from continuing to offer discounts. Sellers then bore the risk of having their products not sell in a timely manner, or at all, while still paying Amazon for things like storage fees of their enrolled products. Many sellers remained stuck with an artificially high price for their products while Amazon was able to maximize its own profits.
Following the investigation, the court, therefore, said “Amazon must stop the “Sold by Amazon” program nationwide and provide the Attorney General’s Office with annual updates on its compliance with antitrust laws. In addition, Amazon will pay $2.25 million to the Attorney General’s Office, which will be used to support the Attorney General’s antitrust enforcement, which does not receive general fund support.”
