California Joins the Antitrust Chorus Against Amazon

Technology Policy Brief #69 | By: Mindy Spatt | October 13, 2022

Header photo taken from: Roger Kisby for The New York Times

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Screen Shot 2022 10 14 at 10.44.09 PM — California Attorney General Rob Bonta announces a lawsuit against Amazon during a news conference in San Francisco.

Photo taken from: AP Photo / Eric Risberg

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State AGs are coming for Amazon, while major antitrust actions by the FTC and Congress loom.

Efforts to rein in Amazon’s market power are ramping up in the nation’s capital and at the state level. Amazon was accused of anticompetitive practices by California’s Attorney General, Rob Bonta, who filed suit against the online giant in September. Bonta claims Amazon is violating California’s Unfair Competition Law and Cartwright Act in order to avoid price competition from other e-commerce sites.

The suit alleges that “Amazon requires merchants to enter into agreements that severely penalize them if their products are offered for a lower price off-Amazon.” Those agreements “thwart the ability of other online retailers to compete, contributing to Amazon’s dominance in the online retail marketplace…”

Amazon’s market dominance make it a must-have distributor for merchants, a growing number of whom sign on every day despite the high cost of doing business on the site. In a press release, Bonta said “Amazon coerces merchants into agreements that keep prices artificially high, knowing full well that they can’t afford to say no.”

According to the lawsuit, the policy was previously known as the “Pricing Parity Provision” and included in Amazon’s agreements with Amazon Marketplace sellers. In 2019 Congress began asking questions about the policy and Amazon got rid of the language. But, Bonta’s suit claims, the policy remained, in the form of high penalties on sellers that offer their products for lower prices elsewhere.

California’s lawsuit comes in the wake of the a successful effort by Washington Attorney General Bob Ferguson to hold Amazon accountable for its anticompetitive practices. His work ended in Amazon being forced to shut down its “Sold by Amazon” program nationwide.

The “Sold by Amazon” program allowed the company to negotiate prices with third-party sellers, rather than compete with them. Ferguson filed suit on antitrust grounds, claiming the practice restrained competition in order to protect profits. In a consent decree Amazon agreed to end the program and paid $2.5 million to fund antitrust enforcement by the AG.

In the Senate, the American Innovation and Choice Online Act, introduced by Sens. John Kennedy (R-La.), Amy Klobuchar (D-Minn.) and Chuck Grassley (R-Iowa) looms. “Big Tech has a track record of unfairly limiting consumer choices and thwarting free-market competition,” Kennedy said.

“The American Innovation and Choice Online Act would help offer consumers more options at competitive prices from businesses online, which is what the American economy is supposed to do best.”

And the Federal Trade Commission, now helmed by Lina Kahn, is widely expected to be cooking something up. Biden’s appointment of Kahn to lead the agency leaves no doubt as to where he stands on Amazon’s anti-competitive activities.

1200x 1 — Khan has noted that Amazon’s power over large sections of the economy — from e-commerce and logistics to television production and cloud computing — has only accelerated in recent years. Khan has been vocal about such concerns for years on social media, even up to her FTC confirmation in 2021.

Screenshot taken from: Twitter, Bloomberg

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Kahn’s groundbreaking 2017 paper in the Yale Law Journal, Amazon’s Antitrust Paradox, suggested that turn-of-the-century antitrust laws and rules needed to be updated for the modern digital age. With classic, railroad style monopolies the fear was that they would use their market dominance to jack up prices. Kahn argued that undercutting the competition can also be monopolistic. Amazon’s lower prices give it so much market power it can easily dominate its competitors.

Amazon and Facebook objected vociferously when President Biden appointed Kahn to the FTC and it’s easy to see why. She wrote her seminal paper as a student. Now, as an agency head who won bipartisan support in her confirmation hearings, she’s in a position to put her ideas into action.