Amazon Ends Its ‘Sold by Amazon’ Program to Settle Price-Fixing Investigation
Last updated January 28, 2022
Amazon is widely admired by other businesses for finding ways to leverage its market power to boost its revenues. But according to a lawsuit filed by Washington state’s attorney general’s office, the company’s “Sold by Amazon” (SBA) program amounted to “unlawful price-fixing” that “unreasonably restrained competition to maximize its own profits off third-party sales.”
Listen to audio highlights of the story below:
Amazon agreed to settle the case by permanently shutting down its SBA program—which it previously suspended—and paying the state $2.5 million.
“Consumers lose when corporate giants like Amazon fix prices to increase their profits,” said Washington Attorney General Bob Ferguson.
Amazon issued a statement saying, “While we strongly believe the program was legal, we’re glad to have this matter resolved.” The company also asserted that it stopped the program “for business reasons unrelated to the AG investigation.”
Sold by Amazon, which launched in 2018 and ran for two years, offered a select group of several hundred third-party sellers the opportunity to have specific products enrolled in the program. Participating sellers could not sell these products elsewhere, and they had “limited, if any ability to lower the price of their products without withdrawing the product” from the program, the AG’s complaint alleged.
In return, these companies were guaranteed a minimum payment, and the possibility to earn more if the price increased after enrollment. Amazon would use its algorithms to determine if customers would pay more than the pre-agreed minimum price and take a cut of the extra profit.
Based on his investigation, Ferguson determined consumers were hurt by this arrangement that distorted the marketplace. The program required consumers “to pay more for those products than they otherwise would have in a competitive market but for SBA,” so that Amazon could maximize its own profits off third-party sales, he said in his complaint.
“This price maintenance fixed the price artificially high because it was set without regard to changes that would affect price in a competitive market, such as changes in things like increasing supply levels and decreasing demand,” the lawsuit stated.
How the Algorithms Worked
Using its algorithms, the lawsuit alleged, Amazon could encourage shoppers to choose alternative Amazon-branded items, rather than similar third-party products:
“For example, while third-party sellers were once able to offer price discounts on their products, Defendant [Amazon] subsequently prevented many sellers from continuing to offer discounts as they saw fit. Third-party sellers then bore the risk of having their products not sell in a timely manner, or at all, while still paying for things like storage fees of their enrolled products. Many sellers remained stuck with an artificially high price for their products while Defendant was able to maximize its own profits.”
Ferguson told Checkbook his office heard from third-party sellers who “wanted to compete with the other sellers, who want to lower their prices to compete, but they were locked in with Amazon on these higher prices.” That, he said, “gives consumers fewer options…and harms consumers.”
In June 2020, once the attorney general’s office started investigating, Amazon suspended the SBA program, but did so in a way that it could be restarted, the state said. In settling this case, Amazon told the court it would not restart SBA or offer a new program with similar terms and conditions, but a different name.
In a statement sent in response to questions from Checkbook, Amazon said, “This was a small program to provide another tool to help sellers offer lower prices, much like similar programs common among other retailers, that has since been discontinued.”
Big Tech Under the Microscope
Amazon and other big tech companies are under the microscope right now by regulators and lawmakers.
As The New York Times noted, Amazon is facing “intense pressure in the United States and abroad over its business practices.” The FTC is conducting an inquiry, and in 2020, European regulators filed antitrust charges against the company alleging the internet giant took advantage of small merchants that used its marketplace.
The U.S. Senate is considering a bipartisan bill that would prohibit big tech companies, such as Amazon, Google, Meta (Facebook), and Apple from favoring their own products over those of rival third-party sellers on their platforms.
Amazon said such restrictions “would harm consumers and the more than 500,000 US small- and medium-sized businesses that sell in the Amazon store, and it would put at risk the more than 1 million jobs created by those businesses."
Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He is also the consumer reporter for NW Newsradio in Seattle. You can also find him on Facebook, Twitter, and at ConsumerMan.com.