DC attorney general goes after Amazon’s first-party business in amended antitrust complaint

Andy Jassy, CEO of Amazon and then CEO of Amazon Web Services, speaks at the WSJD Live conference in Laguna Beach, California, October 25, 2016.

Mike Blake | Reuters

Washington, D.C. attorney general Karl Racine expanded his antitrust complaint against Amazon on Monday, targeting the company’s relationships with wholesale suppliers.

Racine sued Amazon in May over allegations that the company illegally maintained monopoly power through its pricing contracts with third-party sellers. 

The amended complaint expands Racine’s initial allegations to include what he claims are the anticompetitive effects of Amazon’s agreements with first-party sellers, also known as FPS or wholesalers. The original complaint focused on how Amazon’s contracts with third-party sellers (TPS), or those who sell on Amazon under their own brand names, allegedly stifle competition. 

The Washington Post first reported the news of Racine’s amended complaint.

Much of Amazon’s dominance in e-commerce has come from its third-party marketplace. That service is made up of millions of independent merchants who rely on Amazon’s logistics and fulfillment services to get their goods to customers’ doorsteps. Amazon also buys products wholesale from other companies, known as vendors or first-party sellers, and then handles the selling process. 

In the new filing, Racine alleges that Amazon’s “Minimum Margin Agreement” with first-party sellers has the “practical effect” of incentivizing those wholesalers to raise their prices for marketplaces outside of Amazon. 

That’s because those agreements require that the wholesaler guarantee Amazon a minimum profit, according to the complaint, meaning the seller must make up the difference if it doesn’t reach that margin. Racine alleges first-party sellers may be inclined to raise their prices elsewhere “to ensure that Amazon does not drop its price based on lower prices elsewhere.”

“These agreements reduce other online marketplaces’ ability to compete with Amazon by offering lower prices to consumers,” according to the complaint, which goes on to say that the practice “results in reduced competition among online marketplaces and higher prices to consumers.”

Vendors such as popular phone accessory maker PopSockets have previously highlighted Amazon’s aggressive pricing tactics as a persistent issue they encountered when selling their products on the company’s marketplace. 

In a statement, Racine said Amazon has used its dominant position in e-commerce to “rig the system,” resulting in higher prices for consumers and less competition among online marketplaces. Racine said his office uncovered Amazon’s “anti-competitive” agreements with first-party sellers as it was investigating its relationships with third-party sellers.

“I filed this antitrust lawsuit to stand up for consumers, hold Amazon accountable for its anti-competitive practices, and protect competition,” Racine said in a statement. “We’re continuing to do just that with this amended complaint that adds more of Amazon’s misconduct.” 

Amazon spokesperson Jack Evans directed CNBC to the company’s previous statement on Racine’s initial lawsuit.

“The DC Attorney General has it exactly backwards — sellers set their own prices for the products they offer in our store,” Evans said. “Amazon takes pride in the fact that we offer low prices across the broadest selection, and like any store we reserve the right not to highlight offers to customers that are not priced competitively. The relief the AG seeks would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law.”

The company has previously argued that sellers set their own prices for the products sold on Amazon and that it’s within its right not to show offers that aren’t priced competitively.

The amended complaint adds to Amazon’s mounting antitrust scrutiny. In addition to Racine’s lawsuit, Amazon is also being probed by the Federal Trade Commission over its business practices in retail and cloud computing, according to reports from several outlets.

There’s also sweeping antitrust reforms that target Big Tech moving through Congress and the European Commission has zeroed in on Amazon’s treatment of third-party sellers, alleging it engages in anti-competitive conduct. 

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