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May 24, 2022

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‘Sold by Amazon’ program shut down after Washington AG’s antitrust investigation

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Amazon is shutting down its “Sold by Amazon” program after an investigation from Washington Attorney General Bob Ferguson found it was anticompetitive and violated antitrust laws.

The company engaged in unlawful price fixing and unreasonably restrained competition in order to maximize its own profits, according to the lawsuit and consent decree filed Wednesday in King County Superior Court.

As a result of the investigation, Amazon will shut down the program nationwide and pay $2.25 million to the attorney general’s office, as well as provide annual updates on its compliance with antitrust laws. The funds will go toward antitrust enforcement.

The program ran from 2018 to 2020, when Amazon suspended it for reasons unrelated to the investigation, according to a spokesperson for the company. It was a small program offering another tool to businesses, the spokesperson said, and did not include all of the third-party sellers on the e-commerce platform.

Through the program, third-party sellers entered into an agreement with Amazon that set a minimum payment rate for products sold on the platform, according to the lawsuit. If the sales exceeded the agreed upon minimum, Amazon would take a cut of the additional revenue.

A spokesperson for Amazon said the company believes the program was legal and good for consumers. Amazon acted as the retailer and purchased products from suppliers to fill a customer order, ensuring low prices for consumers.

But, Ferguson’s investigation concluded, the program boosted Amazon’s sales and ensured it didn’t have to compete with third-party sellers.

“Consumers lose when corporate giants like Amazon fix prices to increase their profits,” Ferguson said Wednesday. “Today’s action promotes product innovation and consumer choice, and makes the market more competitive for sellers in Washington state and across the country.”

Competing with Amazon seemed inevitable for many sellers, according to a 2021 report from Jungle Scout, a company that works to help entrepreneurs and brands grow on Amazon. Half of third-party sellers on the platform said Amazon sold products that directly competed with their own.

Prices for many products enrolled in the program “stabilized at artificially high levels,” according to a release from Ferguson’s office Wednesday.

Amazon also used an algorithm to match prices to certain external retailers, leading to price increases for some third-party sellers, and a decline in sales as customers opted for Amazon’s own brand of products, the lawsuit alleged.

Ferguson opened a formal investigation in March 2020 and Amazon suspended the program that June, according to a spokesperson for the attorney general.

When Amazon first started to invite third-party sellers to try the new Sold by Amazon program, some sellers were skeptical of the business model, said Dave Bryant, an Amazon seller for nearly 10 years and a part The Ecomcrew, which runs a blog and podcast to monitor the e-commerce giant.

After getting an invite for some of his company’s best-selling products, Bryant remembers the “pretty widely felt sentiment was this cannot be a good idea to allow Amazon to control our pricing.”

“Almost everyone I talked to said this doesn’t seem right,” he said. “Normally, when you let the foxes run the hen house, the hens get eaten.”

Bryant opted out of the program.

Amazon tends to roll out new marketing initiatives for third-party sellers just about every quarter, Bryant said, many of them invite-only based on top-selling products and most with an option to opt in or out.

“That’s the challenge of being a seller,” he said. “You never know which are good for sellers and which are good for Amazon — and which ones are going to stick as well.”

Amazon said it discontinued the Sold by Amazon program in 2020 for business reasons that were not related to the attorney general’s investigation.

“This was a small program to provide another tool to help sellers offer lower prices, much like similar programs common among other retailers, that has since been discontinued,” a spokesperson said. “While we strongly believe the program was legal, we’re glad to have this matter resolved.”

Like many of the tech giants, Amazon has faced several allegations of anticompetitive behavior and violations of antitrust law. In January 2021, consumers filed a lawsuit against Amazon in a U.S. District Court in New York, accusing the company of using anticompetitive contracts to drive up the cost of e-books.

Later that year, District of Columbia Attorney General Karl Racine sued Amazon for fixing online retail prices through contract provisions and policies for third-party sellers. In that case, Racine alleged Amazon had prevented third-party sellers from offering their products at lower prices on any other online platform, including their own website.

According to an October report from the company, Amazon had nearly 2 million small- and medium-sized businesses as third-party selling partners. The price to sell on the platform varies based on things like the company’s product category and its fulfillment strategy.

In 2020, Amazon generated $80.5 billion in third-party seller services, according to market and consumer data firm Statista. Third-party sales account for more than 50% of sales on Amazon.

Washington ranks among the top 10 states with the fastest-growing rate of third-party sellers on the digital marketplace, Ferguson said.

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