The Michigan attorney general’s lawsuit asserts that Amazon uses “exclusionary anti-discounting conduct that stifles price competition.” It alleges the company “suppresses this price competition by wielding its monopoly power to prevent sellers and retailers from offering lower prices off Amazon.”[10]
Amazon has a “price parity” policy that requires merchants who want to sell on Amazon’s Marketplace to offer their products to shoppers there for the lowest price they make available online.[11] That means that if a product is priced at $15 on Marketplace, the seller cannot offer the same product for less than $15 on another website, including the seller’s own. If a seller fails to comply with the price parity policy, Amazon may have the products demoted in the search algorithm on the Amazon website, so shoppers are less likely to notice the product.
Amazon’s justification for a price parity system seems reasonable. Were the company to allow third-party sellers to advertise one price on its website and a lower price on another, it would allow sellers to shift the sale from Amazon to the other site, often the seller’s own website. Such sellers would be free riding on Amazon, using its popular website to advertise their products without paying Amazon for this benefit and closing the sale on their own website.
Being a free rider is a good deal for third-party sellers. They could shift some of the costs of promoting their products to Amazon without charge. After learning about products on Marketplace, shoppers could turn to the seller’s website for a lower price. A free-riding seller could potentially get more sales and save on advertising and promotion costs. Amazon would, in effect, be subsidizing its competitors by promoting their products.
It should be noted that the lawsuit makes no claims of direct harm to consumers from Amazon’s price parity policy. Instead, the lawsuit makes a complex argument that Amazon’s conduct forces third-party sellers to maintain artificially high prices on other retail platforms. Thus, the alleged harm is to the retail websites of Amazon’s competitors, who will not get as much business as they might otherwise.
The lawsuit is particularly weak on how this alleged harm to Amazon’s competitors translates to harm to consumers. Amazon’s economies of scale provide many other benefits to Amazon shoppers, including product selection, shipping speeds, and ability to compare prices and other features from competing suppliers. This price parity policy is not harmful to Amazon shoppers and likely leads to lower online prices. It essentially guarantees to shoppers that the price they find on Amazon’s platform is the lowest they will find anywhere online. This certainly saves customers time, as they may no longer need to do their own comparison shopping.
Notably, the complaint emphasizes the “price surveillance” Amazon does regarding prices offered by competitors, as if this is something sinister.[12] But Amazon appears to be using the same price comparison tools and software that many companies and even consumers regularly use. These typically automate the monitoring of online prices, often to identify the lowest one. By using the term, Nessel and the Federal Trade Commission are attempting to vilify what appears to be a standard business practice that poses no harm to consumers. As IT expert Daniel Castro wrote about the FTC’s use of such ominous-sounding terms to describe common business practices:
If the FTC continues down this path of labeling data-driven design practices as potentially illegal activity and conflating illegal practices with bad design, businesses will face a legal minefield where they will face penalties for failing to anticipate regulators’ subjective analysis of their product design decisions, ultimately limiting the development of better online apps, games, and services for consumers. Moreover, if the FTC continues to promote misleading terms like “dark patterns” and “surveillance economy” to attack the tech industry, then it risks further eroding its credibility as an objective regulator. Instead of seeking to inject regulators into the design of more online services—a skillset the average regulator does not have—the FTC should keep its focus on enforcing the laws already on the books to protect consumers.[13]
The Michigan attorney general’s lawsuit, however, turns Amazon’s lowest price guarantee on its head, claiming that the price parity policy is really a minimum price for sales on non-Amazon websites. This allegedly hurts shoppers by preventing them from buying at a lower price from another online platform. These assertions are contradicted by the basic facts of how a price parity system works.
Amazon’s price parity policy keeps prices low on its platform by removing the incentive for free riding by third-party sellers. Forcing Amazon to allow these merchants to free ride will not help consumers. If anything, Amazon shoppers in Michigan will pay more if the lawsuit succeeds.
The Michigan lawsuit gets its analysis entirely backwards. Amazon’s price parity policy is not an “anti-discounting scheme,” as Nessel claims. Sellers on Marketplace can discount a product as much as they like, just so long as they make those discounts available to Amazon shoppers. If Marketplace sellers choose not to offer the same products for sale on other sites, that is evidence that they find selling them on Amazon to be better than the alternatives.
Absolutely nothing prevents sellers from offering lower prices elsewhere for products they sell on Amazon. These could be offered online on their own website or on a competitor’s of Amazon, like Walmart. Many already do this. This is real price competition that benefits consumers. What Amazon’s price parity does, quite reasonably, is prevent sellers from executing a bait and switch: advertising their products on Amazon’s platform for artificially higher prices so they can lure shoppers to purchase the item elsewhere.
This free-riding tactic would raise consumer prices on Marketplace. Amazon’s price parity policy, meanwhile, helps keep prices low for consumers. That’s why this lawsuit’s main claim has the issue exactly backward. If Nessel and the other attorneys general force Amazon to host free riders, it will come at the expense of Amazon shoppers and the Michigan-based third-party sellers the attorney general claims to be trying to protect.