Amazon Drops Lowest-Pricing Rule for Third-Party Sellers

Amazon reportedly has removed the price parity contract clause that barred third-party vendors on its platform from selling their products at a lower price elsewhere.

The company long has been accused of anticompetitive behavior and has come under considerable political pressure because of its use of the price parity, also known as “most favored nation,” restriction:

  • In 2017, the EU accepted Amazon’s offer to remove the MFN clauses from its e-book contracts in the EU for the next five years, following an investigation launched in 2015; and
  • In December, Sen. Richard Blumenthal, D-Conn., urged the U.S. Federal Trade Commission to investigate Amazon’s use of the MFN clause.

Sen. Elizabeth Warren, D-Mass., earlier this month announced that if she should win her bid for the presidency, she would break up Amazon and other tech giants.

“Amazon sees the handwriting on the wall,” remarked Rebecca Wettemann, vice president of research at Nucleus Research.

“Whether it’s this administration’s politically motivated targeting of Amazon or future efforts by lawmakers, this anticompetitive behavior is very easy to understand and, thus, makes it an easy target,” she told the E-Commerce Times.

Meanwhile, competition on Amazon’s platform has reached frenzied heights, and sellers have been backstabbing each other, a situation made worse by Amazon’s enforcement of its rules, which have been gamed to result in targeting of victims rather than perpetrators.

Seller scams have impacted staff, some of whom leaked data to sellers. Amazon has fired a few employees in the U.S. and India for inappropriately accessing data that disreputable merchants misused.

Blumenthal welcomed Amazon’s decision to drop the MFN clause, but reportedly said the action came “only after aggressive advocacy and attention.”

He renewed his call for the FTC and the U.S. Department of Justice to mount aggressive investigations of Big Tech’s potential antitrust violations and take necessary enforcement actions.

Arguments Against the MFN Clause

MFNs used by online platforms can harm competition by keeping prices high and discouraging the emergence of new platform rivals through both exclusionary and collusive mechanisms, wrote Jonathan Baker and Fiona Scott Morton in a Yale Law Journal article published last year.

Government enforcers in the U.S. and private plaintiffs potentially could target anticompetitive platform MFNs under the Sherman Act, they pointed out, and the litigation challenges presented by such cases.

Amazon’s leading position in the U.S. e-commerce market may give it “the degree of market power at which its price parity provisions could raise serious competition concerns,” Blumenthal noted in his letter to the FTC.

Amazon accounted for 40 percent of last year’s US$517 billion U.S. online retail market, according to Internet Retailer. Overall, e-commerce sales represented nearly 52 percent of all retail sales growth in the U.S. last year, and accounted for more than 14 percent of total retail sales.

“Third party vendors were locked out by Amazon,” observed Ray Wang, principal analyst at Constellation Research.

Amazon “used its pricing power, loyalty programs and reach to create an unfair advantage,” he told the E-Commerce Times.

No Relief for the Competition

The deletion of the MFN clause is not likely to be of much help to etailers.

“Retailers such as Amazon and Walmart can demand the pricing and other concessions they want from suppliers, and their scale gives them a lot of negotiating power,” Nucleus’ Wettemann pointed out. “This isn’t going to go away because the most obvious anticompetitive restriction is lifted.”

Vendors “would need access to a market more extensive than the one controlled by Amazon” to really benefit from the elimination of the MFN clause, suggested Michael Jude, program manager at Stratecast/Frost & Sullivan.

“Remember, price versus volume,” he told the E-Commerce Times.

Further, with Amazon being “the biggest retail venue around, it’s unlikely that vendors would disconnect from them in order to make less money elsewhere,” Jude said.

“All prices being equal, the etailer with the best service and reputation would be the winner,” he pointed out. “Right now, that is Amazon — but they could be challenged on service.”

Dirty Deeds Done Dirt Cheap

Amazon sellers have been playing dirty tricks on each other to game the system, creating difficulties for legitimate sellers, according to Josh Dzieza’s exclusive report in The Verge.

Abusive sellers have devised a number of intricate schemes to get rivals suspended under Amazon’s rules:

  • Buying fake five-star reviews for competitors;
  • Filing false intellectual property reports;
  • Reclassifying rivals’ listings in unrelated categories; and
  • Tampering with trademark files at the U.S. Patent Office.

“We see this happen in many cases,” Constellation’s Wang noted. “The challenge is identifying verified vendors in the process.”

Amazon’s rules often change and are strictly enforced.

For example, one client’s listing for a rustic barn wood picture frame was deemed unsafe and taken down because one customer had mentioned getting a splinter — although the customer gave the product five stars.

Another seller was suspended for selling Nike shoes that were not as described, because some buyers complained the shoes were too small.

Sellers reportedly have to confess and repent, whether or not they are guilty, and present a plan of action on how to make things right.

The complexity of the suspension process has created an industry of consultants specializing in writing Amazon appeals and getting sellers reinstated.

Richard Adhikari

Richard Adhikari has been an ECT News Network reporter since 2008. His areas of focus include cybersecurity, mobile technologies, CRM, databases, software development, mainframe and mid-range computing, and application development. He has written and edited for numerous publications, including Information Week and Computerworld. He is the author of two books on client/server technology. Email Richard.

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