The Amazon Effect   //   June 1, 2021

Everything you need to know about Amazon’s antitrust complaint

Amazon is facing its first major antitrust challenge in the U.S., in a case that centers on the company’s third-party marketplace — the section of Amazon that accounts for around 60% of its overall product sales.

Last week, Karl Racine, attorney general for the District of Columbia, filed a lawsuit alleging that Amazon’s own policies were forcing sellers to set prices that are artificially high on platforms other than Amazon. The case centers on Amazon’s Fair Pricing Policy — the rule in which Amazon states that prices on its platform should be lower than in other stores (sometimes called a “most-favored nation” clause).

Here are a few key aspects to know about the case.

Amazon has been concerned about its most-favored nation rule before

Up until 2019, Amazon had a “price parity provision” that outright banned sellers from offering lower prices anywhere outside of Amazon. After Senator Richard Blumenthal wrote a letter suggesting that it could be the basis of an antitrust case, Amazon tweaked this clause in 2019.

In its place, Amazon introduced its new Fair Pricing Policy, which set a slightly softer — but very similar — benchmark for how sellers can approach pricing on Amazon. If the prices are “significantly higher than recent prices offered on or off Amazon,” Amazon said it reserves the right to take action. According to the D.C. lawsuit, that rule perpetuates the expectation that sellers offer their lowest prices to Amazon. That is in part because of the vagueness around what “significantly higher” means.

According to the lawsuit, Amazon doesn’t have to directly remove a listing that violates this policy in order to get sellers to comply — the enforcement action that might be expected. Instead, Amazon can hinder sellers who offer cheaper products elsewhere by de-prioritizing them on the marketplace. The most prominent way Amazon does this is by blocking a product from winning the buy box — meaning customers would have to go out of their way to select the product from that specific seller — effectively tanking sales.

By allegedly forcing sellers not to offer lower prices outside of Amazon, the D.C. complaint states that Amazon is artificially inflating prices across the rest of the internet. Sellers who might have otherwise offered low prices elsewhere, such as on their own websites, now couldn’t. Amazon, for its part, has responded to the suit saying that “the DC attorney general has it exactly backward” because “Amazon takes pride in the fact that we offer low prices across the broadest selection.”

D.C. is going it alone — for now

At the moment, the District of Columbia is the only territory in the U.S. bringing an antitrust lawsuit against Amazon. Neither the federal government nor other state attorneys general have yet to jump in. And whereas all of the major Big Tech antitrust lawsuits have happened in federal court, according to Law360, D.C.’s lawsuit is happening in local court, under local law.

That is unusual, but not unheard of. “The fact that the federal government has not yet filed an antitrust lawsuit against Amazon does not mean that the suit is somehow meritless or lacks efficacy,” said Dionne Lomax, an attorney and a lecturer in business law at Boston University. “States have their own antitrust laws and regulations,” she said, in addition to the federal antitrust laws on the topic.

Yet D.C. might not be alone in its lawsuit for long: Law360 reported that the FTC is working with at least four other states — Connecticut, California, New York and Pennsylvania — as it investigates Amazon. Notably, the Biden administration nominated Lina Khan to the FTC, a prominent critic of Amazon who has made the case for antitrust lawsuits against the e-commerce company.

Amazon is facing other kinds of antitrust scrutiny elsewhere in the world 

The D.C. lawsuit’s focus on most-favored nation clauses — the rules whereby sellers have to reserve their lowest price for that specific marketplace — also diverges from other types of antitrust scrutiny Amazon has received previously.

In the European Union, for instance, regulators are investigating Amazon for the way it uses data. The gist of that inquiry is that “Amazon is in a unique place because it is a retailer and it is also able to observe what other retailers are doing,” said Shubha Ghosh, a law professor at Syracuse University. Which is that say that, Amazon, through the power of its platform, is “able to collect all this information on other retailers, who are essentially Amazon’s competitors.”

The EU has also pointed out that Amazon launches its own private-label products, which a Wall Street Journal story has alleged are designed using third-party seller data.

The D.C. case matters because of discovery

The D.C. case could be impactful even if the attorney general doesn’t ultimately win it. Ghosh said that “a lot of litigation is really about this thing called discovery, about getting the other side to answer questions, about getting the other side to bring documents.”

The case, in other words, will force Amazon to open its books and its internal business practices up to investigators. “It can shed sunshine on issues and bring things out in the open,” he said — which might, depending on what is uncovered, inspire other lawsuits down the line.