Why California’s Antitrust Suit Against Amazon Matters

Adriana Lee

Thu, Sep 15, 2022, 7:34 PM 4 min read

Filing suit against Amazon has practically become an American pastime, but recent inflationary pressures adds an accelerant to the mix for California Attorney General Rob Bonta, who’s suing the e-commerce juggernaut over a pricing strategy that, he said, is unfair to merchants and artificially keeps prices high for consumers.

Though Amazon gets sued a lot, for a variety of reasons — by shoppers, tech users, vendors, even by its own employees — antitrust cases in the U.S. have been rare. This is the first filed by California against the company, and only the second one ever brought by an AG.

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According to the lawsuit, which was filed in the San Francisco Superior Court on Wednesday, the tech and retail giant executes agreements that unfairly bar third-party merchants from selling products for less in other marketplaces.

The case cites a number of interviews taken over several years that describe punitive measures, like the removal of “buy now” or even basic “add to cart” buttons. But many sellers can ill afford to skirt Amazon, an online retail empire responsible for some 38 percent of U.S. e-commerce. So they comply, raising prices on their listings on sites like Walmart and Target.

Bonta argues that this approach violates the state’s antitrust laws.

“For years, California consumers have paid more for their online purchases because of Amazon’s anticompetitive contracting practices,” said Bonta in a statement. “Amazon coerces merchants into agreements that keep prices artificially high, knowing full well that they can’t afford to say no.”

He believes that, with rival platforms unable to compete on price, people only rely on Amazon more, further fueling its market dominance. Sellers find it even harder to decline its increasingly “untenable” demands, hitting California’s consumers harder in the wallet.

“The reality is: Many of the products we buy online would be cheaper if market forces were left unconstrained. With today’s lawsuit, we’re fighting back,” Bonta said.

At home and abroad, Amazon regularly faces antitrust scrutiny over its pricing approach and how it treats merchants. Even a pair of consumers filed an antitrust case against Amazon last year. For its part, Congress has questioned executives multiple times on the matter, hauling in previous chief executive officer Jeff Bezos and current CEO Andy Jassy to give testimony. One investigation led to a scathing probe on Amazon’s practices. But on the federal level, there has been relative inertia on the legal or enforcement front. With the D.C. and now California suits, policy wonks are wondering if states, whose laws tend to be stricter, are starting to leap into action.

That’s one interpretation. Another is that Bonta, who was appointed by Gov. Gavin Newsom last year, is about to face his first general election this fall against no less than three challengers. At least with the lawsuit, he can say that he’s acting on behalf of consumers feeling serious sticker shock and point to a recent example.

Of course, that doesn’t mean Amazon is innocent, and in the current climate, California’s argument may be even more compelling. The court might agree that the company stifles competition, harms consumers and puts brands in a tough spot — especially those wrestling with supply chaos. It’s not hard to argue that some brands and retailers have been facing a maddening reality, as delayed shipments finally arrived while consumers began cutting back on spending.

In the face of shifting shortages and gluts, taking away a merchant’s ability to efficiently offload surplus could look particularly cruel.

Even so, Amazon, which has not offered comment, will likely still move to dismiss. After all, it worked in D.C. Citing insufficient evidence, the court ruled in Amazon’s favor and dismissed the case in March. AG Karl Racine vowed to appeal, but it’s not clear how long the legal tussle could go on. Such matters tend to take a long time to play out. Just ask Europe.

In 2020, the European Commission charged Amazon with using its dominance and data to unfairly compete with marketplace sellers, and launched antitrust probes into the company’s practices. Two years later, the company finally relented and agreed to make changes in July. Notably, those types of tactics will become illegal next year, when the E.U.’s Digital Markets Act takes effect, which means Amazon didn’t reverse course until there was little time left. In doing so, the company managed to dodge potentially massive fines. That’s no small issue, given the financial headwinds that have been dogging the e-tailer and other e-commerce companies, as huge pandemic gains in online shopping swing the other way.

As for California, it’s clear that the suit won’t hit the courts before Bonta’s election. It may be consequential, no matter who litigates it. But even as it is, regardless of the outcome, it appears to have already served at least one purpose.

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Why California’s Antitrust Suit Against Amazon Matters

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