California sues Amazon for blocking better prices from its competitors

An Amazon employee prepares an order at the company's warehouse in Berlin, Germany. picture alliance (Getty Images)

It is often said that the United States follows what California does.

The State has launched this Wednesday its biggest pulse against Amazon, the e-commerce giant with a lawsuit for violating competition laws.

Rob Bonta, the Californian attorney general, has assured that Jeff Bezos's company forces small merchants who offer their products on its platforms to keep prices artificially high through unfavorable agreements or the threat of expelling them from the service.

The lawsuit seeks that the courts order Amazon to end these practices under penalty of paying $2,500 in damages for each affected third-party seller.

"For years, California consumers have paid more for their online purchases because of Amazon's anti-competitive practices," Bonta said at an event in San Francisco.

The lawsuit, which has many parts of its 84 pages blacked out to protect sensitive information, documents how important Amazon is to merchants.

The possibility of offering its products on its network is opening up to a market of 160 million households that are members of the Prime service, paying 139 dollars a year to belong to the club, which involuntarily becomes the first option when you want to buy something.

The company controls 80% of US retail sales of books and magazines, and 50% of electronics, packaged goods and toys.

For hundreds of thousands of merchants, "Amazon represents 20 or 30% of their sales and they would not be able to recover it through other sales channels if they stopped selling there," the document states.

The influence of the giant can be even more relevant for small businesses and third parties, who can generate between 80 and 100% of their profits offering their products there.

“Amazon is not loved by sellers, but they are trapped in the platform.

You have no choice but to make a pact with the devil,” says a company competitor, who was not quoted, in an internal memo.

According to the local prosecutor's office, Amazon offers any seller who wants to have access to the platform a Business Solutions Agreement contract.

One of the requirements of this is that "purchase prices and other conditions are at least as favorable for users of Amazon sites."

Bonta and his legal team consider this to mean that this petition is a "prohibition to offer products on Amazon for a price lower than those offered by them."

According to Bonta, Amazon knows full well that merchants cannot afford to say no to deals that inflate prices.

“Other e-commerce platforms can't compete on price, so consumers go to Amazon as their one stop shop for all their purchases.

This perpetuates its dominant position in the market, allowing the company to make unsustainable demands on merchants”, explained the prosecutor.

A consumer advocacy organization claimed in a December 2021 report that Amazon pockets 34% of every transaction made on its platform.

This percentage was 20% in 2018 and 19% in 2014. The average price that merchants pay just to offer a product increased by 28% since 2015.

This is not the first lawsuit of this kind faced by the company.

In May 2021, the District of Columbia, the country's capital, launched a lawsuit against Amazon for the same reason.

“These restrictions allow Amazon to build and maintain monopoly power,” local prosecutor Karl Racine said at the time.

This complaint is being reviewed by the Federal Trade Commission, the European Union and a special legislative committee.

The process in California, however, is important because it is one of the most important markets for Amazon within the United States.

According to California, Amazon's dominance in warehousing and logistics operations is another barrier to entry for competitors.

Bezos's company has 10,000 trucks and its own fleet of planes, which enter and leave hundreds of warehouses that have been built in the country.

“Amazon handles a parcel volume comparable to the most important companies such as UPS, FedEx and the US Postal Service,” indicates the prosecution, which recalls that the company surpassed FedEx in market share two years ago thanks to the pandemic.

In that same year, the company achieved its highest profit in its history with a net profit of 5.2 billion dollars.