Washington, D.C., Attorney General Karl Racine is accusing Amazon (NASDAQ: AMZN) of violating the city's Antitrust Act in a lawsuit filed on May 25. The suit states that the company uses its third-party seller agreements to unfairly inflate prices and dominate the online retail market.
The lawsuit focuses on the agreement through which businesses are able to sell their products on Amazon. According to that agreement, sellers are not allowed to charge less for their products on any other sites than they do on Amazon.
Under D.C. law, these types of agreements are known as "most favored nation" agreements. According to Racine, Amazon has been "illegally abusing and maintaining its monopoly power by controlling prices across the online retail market" for years now. He argues that the company's "most favored nation" provisions create an artificially high price floor.
Far from enabling consumers to obtain the best products at the lowest prices, Amazon instead causes prices across the entire online retail sales market to be artificially inflated, both for products sold on Amazon's online retail sales platform and on its competitors' online retail sales platforms," the suit reads.
According to Racine, up to 40% of the Amazon price tag you see is likely to come from fees charged to sellers by Amazon. This means that sellers are stuck either selling their products at a loss on Amazon or attempting to sell their products for an inflated price elsewhere. The second option seems to be the most common.
The suit argues that this across-the-board price increase keeps third-party sellers from being able to compete with Amazon, a "restraint of trade" which is allegedly illegal under D.C. law. This favorable situation has allowed Amazon to unfairly control the market, according to the suit.
"Amazon is estimated to have between 50 to 70% of the market share of the online retail sales market. By contrast, the next two largest retail platforms, Walmart.com (NYSE: WMT) and eBay (NASDAQ: EBAY), have only around 5% of the market each," the AG told reporters.
Amazon has responded to Racine's lawsuit in a statement, saying that the AG "has it exactly backwards - sellers set their own prices for the products they offer in our store. 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."