“I founded Amazon 26 years ago with the long-term mission of making the company the most customer-focused on Earth, ”Jeff Bezos he testified before the House’s antitrust subcommittee last summer. “Not every company adopts this customer first approach, but we do, and it’s our biggest strength.”
Bezos ’obsession with customer satisfaction is at the heart of Amazon’s automation. Every move the company makes, on this account, is conceived with only one goal in mind: it makes the customer happy. If Amazon has become an economic juggernaut, the king of e-commerce, it’s not because of unfair practices or sharp elbows; it’s just because customers love it so much.
U antitrust lawsuit filed against Amazon Tuesday directly challenges that narrative. The lawsuit, led by Karl Racine, Washington DC’s attorney general, focuses on Amazon’s use of a so-called “most-favored-nation” clause in its contracts with third-party sellers, which account for most of the sales volume on Amazon. A more-favored-nation clause requires sellers not to offer their products at a lower price on any other website, even their own. According to the lawsuit, this will harm consumers by artificially inflating prices across the internet, preventing other shopping sites from competing against Amazon for the price. “I filed this antitrust lawsuit to end Amazon’s ability to control prices throughout the online retail market,” Racine said at a press conference announcing the case.
For a long time, Amazon has openly done what DC claims; its “price parity provision” explicitly requires third-party vendors to offer lower prices on other sites. It was signed in Europe in 2013, after competition authorities in the UK and Germany began investigating it. In the United States, however, the provision lasted longer, until Senator Richard Blumenthal wrote a letter to antitrust agencies in 2018 suggesting that Amazon violates antitrust law. A few months later, in early 2019, Amazon abandoned price parity.
But that wasn’t the end of the story. The DC cause alleges that Amazon only replaced it new policy which uses a different language to accomplish the same result as the old rule. Amazon’s “Fair Market Price Policy” informs third-party sellers that they may be punished or suspended for a variety of offenses, including “setting a price for a product or service that is significantly higher than the recent prices offered. on or off Amazon. ” This rule can protect consumers when it is used to prevent it price-gouging for scarce products, such as facial masks in the early days of the pandemic. But it can also be used swollen prices for the items that sellers prefer to offer are more affordable. The key phrase is outside of Amazon. In other words, Amazon reserves the right to cut sellers if they list their products at bargain prices on another website – as in the old price parity provision. According to u final report presented by the House’s antitrust subcommittee last year, based on testimonials from third-party sellers, the new policy “has the same effect of blocking sellers from offering lower prices to consumers at other sales sites”.
The main form that adopts this pricing discipline, according to sellers who have been declared against Amazon both publicly and in anonymous testimonials, is through manipulating access to the Buy Box — those “Add to Cart” buttons and “Buy Now” at the top right of an Amazon product list. When you go to buy something, there are often a lot of sellers looking to make the sale. Only one can “win the Buy Box”, meaning they are the one who gets the sale when you click one of these buttons. Because most customers don’t scroll down to see what other sellers are offering a product, earning the Buy Box is crucial for anyone trying to earn a living selling on Amazon. Like James Thomson, a former Amazon employee and partner at Buy Box Experts, a branding consultancy for Amazon sellers, he told me in 2019, “If you can’t win the Buy Box, for all intents and purposes, you’re not going to win the sale.”
Jason Boyce, a former Amazon seller turned consultant, explained to me how it works. He and his colleagues were excited when the last third-party seller contract they signed with Amazon, to sell sporting goods on the site, did not include the price parity benefit. “We thought,‘ That’s fine! We can offer discounts on Walmart, and Sears, and elsewhere, “he said. But then something strange happened. Boyce (who spoke with House investigators as part of the antitrust investigation) noted that , once their company lowered prices on other sites, sales on Amazon began to skyrocket. ”We went to the list and the“ Add to Cart ”button was gone, the“ Buy Now ”button was gone . Instead, there was a gray box that said, ‘See All Buying Options.’ You can also buy the product, but it was an extra click. Now, one more click on Amazon is an eternity – it’s all about immediate gratification. ”Also, his company’s advertising spending has dropped, which he realized was because Amazon doesn’t show users ads. for products without a Buy Box. “So what did we do? We went back and raised our prices everywhere, and in 24 hours everything came back. Traffic has improved, clicks have improved and sales have returned.”