Will ending its price parity rule take the antitrust heat off Amazon?

Discussion
Photo: Getty Images
Mar 13, 2019
George Anderson

There’s no doubt that Amazon.com carries a lot of weight for third parties looking to establish and/or grow their B2C businesses online in the U.S. It draws more traffic than any other site, and product listings that come in near the top of searches on Amazon can lead to big sales for small businesses.

There’s also no doubt that Amazon has come under increasing scrutiny in its relations with marketplace sellers as its business has grown exponentially over the years. The spotlight put on Jeff Bezos and company has not always been favorable. Its business practices have been depicted as predatory (moving into hot categories first established by its third-party sellers) and even anti-competitive (requiring third-parties to offer their lowest prices on Amazon under the threat of being tossed off the platform).

On the last point, Amazon has decided to end its “price parity” rule, which may mean that consumers will find better prices from third-party sellers on other sites. The e-tail giant took the action after Sen. Richard Blumenthal of Connecticut wrote a letter to the Justice Department in December raising antitrust concerns. In the letter, Sen. Blumenthal pointed out that Amazon had dropped a similar price parity rule in Europe in 2013 after coming under regulatory scrutiny.

Last week, Sen. Elizabeth Warren of Massachusetts, who is running to become the Democratic Party’s nominee for president, wrote in a blog on Medium that antitrust rules need to be updated for the modern, tech-driven economy.

While she didn’t name Teddy Roosevelt, Sen. Warren did echo arguments made more than a century ago that asserted business behemoths have the ability to limit competition. In President Roosevelt’s time, the focus was on prices. Today, Sen. Warren argues, it is more a matter of access. Limiting access by denying space on a platform or pushing down listings in search results are anti-competitive acts with top- and bottom-line repercussions for smaller businesses.

“America’s big tech companies provide valuable products, but also wield enormous power over our digital lives,” she wrote. “Nearly half of all e-commerce goes through Amazon. More than 70 percent of all internet traffic goes through sites owned or operated by Google or Facebook.”

DISCUSSION QUESTIONS: Do you think Amazon’s “price parity” rule was within its rights or did it cross a line? Do you agree that America’s anti-trust rules need to be updated for the realities of the tech era? If yes, how might they affect Amazon, Facebook, Google and others?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I’ll say it again, regulations haven’t caught up with (digital) realities. Amazon needed to throw a bone here in order to get the spotlight off, if only temporarily."
"Since when is being innovative, focused on the customer and the long term, and becoming successful, against the law?"
"If forced to operate under the requirements being discussed, the resulting platform would, in effect, become a public utility for ordering goods — not a retailer."

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12 Comments on "Will ending its price parity rule take the antitrust heat off Amazon?"


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Jeff Sward
BrainTrust

It’s amazing that Amazon got away with this “rule” for so long. “Suggested” retail could only be suggested because retailers are supposed to be able to sell at their discretion. Brands could demand absolute fealty so why did Amazon get away with it? I know, silly question. But this move is long past due.

Mark Ryski
BrainTrust

Amazon’s “price parity” rule was certainly within their rights, however, what makes this situation unique is Amazon’s market power. As the leading online retailer of virtually everything, and with the financial wherewithal to offer deeper discounts due to financial strength afforded by their AWS business, Amazon is in a position to exert inordinate pressure on competitors.

Like all major legislation, it should be reviewed and updated to reflect the new realities of a changing market. So I think it’s right for law makers to want to examine the laws. But it’s complicated and given the dysfunction in Washington, I’d worry about unintended consequences of over reactions. While I do believe that some measure of reform may be required, ultimately it will be very difficult to break-up Amazon, Facebook and Google in this age of global business.

Paula Rosenblum
BrainTrust
I think brand managers do this all the time. They set the cadence of markdowns (and percent) for the retailers that carry their goods. Of course, the retailers have found ways around this, but it’s a very common practice. And there is generally a “MSRP” along with a floor price specified. These things are normal. Overall, I think this antitrust thing against Amazon is a total red herring. I mean, why Amazon and not Walmart? Walmart is four times Amazon’s size. Of course, it’s clever for Amazon to make this move, given the nature of U.S. politics, but I really wish the government would focus more on privacy issues than on antitrust. I must be a real rube, because I think it’s a silly argument. But then, I thought it was silly not to let Office Depot and Staples merge, too. Man, I wish we had more tech-savvy people in government. If they are still focused on antitrust, and not on the data gathering happening without permission, they are hopelessly out of date.
Carol Spieckerman
BrainTrust

I’ll say it again, regulations haven’t caught up with (digital) realities. Amazon needed to throw a bone here in order to get the spotlight off, if only temporarily. As a global operator, anti-Amazon momentum can build quickly as countries with tighter anti-competitive and privacy controls amp up scrutiny, which in turn draws attention to the U.S.’s more lax standards. None of it good for Amazon.

Liz Adamson
BrainTrust

While Amazon has taken its price parity rule out of its seller agreements I don’t believe it will be changing its search and buy box algorithm to follow suit. The buy box, or the click to buy button, will kick out any seller whose price has been deemed too high by Amazon. Conversion rates plummet when a seller does not have the buy box, so sellers will need to continue to keep price parity with other platforms.

There have been many other concerns raised by antitrust watchdogs, including Amazon’s access to massive amounts of third-party seller data and using that data to launch their own product lines.

At some point business practices of tech giants like Amazon, Facebook and Google will need to be reviewed and addressed. As that happens the question should be, what is good for the consumer? And going back to the price parity rule, you can argue that it is indeed best for the consumer that Amazon drive down prices across their marketplace.

Ben Ball
BrainTrust

Sen. Warren’s focus on access as the critical factor in determining monopoly or anti-competitive behavior is the crux of this discussion. Does the fact that Amazon or other platforms’ virtual merchandising vehicles have the capacity to carry every product and competitor who wants to be there mean they should have to? I don’t think we would have ever considered a brick-and-mortar retailer to be “anti-competitive” for refusing to carry every single brand and SKU of toothpaste or toilet paper available for sale. It would be cost prohibitive and physically impossible. Forcing one or all online retailers to do the same would result in rapid consolidation to only one platform. If forced to operate under the requirements being discussed, the resulting platform would, in effect, become a public utility for ordering goods — not a retailer.

Phil Masiello
BrainTrust
The price parity rule was unfair in that it restricted third-party sellers from covering all of the costs associated with selling on the Amazon marketplace. Selling a product on their own website is less costly. Amazon has the benefit of tremendous traffic to market to. But a brand may be able to sell their products for less on its own site and should be allowed to do so. Antitrust should be handled on a case by case basis. Amazon is an open marketplace and does not force a seller to use their platform. It is voluntary to sell, but they are Amazon’s customers. There are many other places to sell online, so I am not certain antitrust applies. I would think Facebook would be more at risk because of how they operate and the handling of customer data. Facebook has a tremendous amount of data on consumers which does provide an unfair advantage to others. Google as well because of their stronghold on search as well as advertising as well as website analytics. They certainly… Read more »
Herb Sorensen
BrainTrust
Walmart worked around this by having the “identical” item as competitors, at a slightly lower cost, although the item was not really identical. It’s been a dozen years since I did a national pricing study for Sears, across a half dozen competitors across a variety of categories One of the things we found was that often “Item A” in all the competitors was identical, but in Walmart it was “Item A-2” or some such. Something of cost that Walmart had the manufacturer remove, that Walmart considered inconsequential to customers, justified them getting a lower price from the manufacturer than the competitors. Allowing some savings to be passed on to the customer in a slightly lower price. Several years later, in one of the books about Walmart, it was reported that a major lawnmower company withdrew all their merchandise from Walmart stores, choosing NOT to use Walmart as a retail outlet, for exactly this reason. Pressure, pressure, PRESSURE! It is baked into the retailer-supplier relationship, and quite properly so. So this is the context as to… Read more »
Evan Snively
BrainTrust

In a silo – Amazon’s price parity was certainly well within its rights. It’s only when you start layering on other business practices like intent to replicate/enter the market and altering listing algorithms that the waters start to get real murky.

That is part of the major problem with trying to pin down regulation – it’s a moving target that looks a little different for every category of goods which Amazon sells, and there are so many levers at their disposal that it seems that there is always a way for them to pivot to get their desired outcome.

Doug Garnett
BrainTrust

Amazon ceded a (now) meaningless rule hoping to buy off regulators? Let’s hope they’re smarter than that.

While the rule was key early on in establishing Amazon, they are now the behemoth and the price parity rule simply isn’t critical any more. Smart move on Amazon’s behalf.

We have, though, reached a point where regulation or trust busting is needed with digital efforts. A reality of digital is that while it has encouraged business opportunity in some areas, overall it focuses power in the hands of fewer and fewer entities. This proved true in music and it’s proven true in online retail, online advertising, devices, and social media.

Neil Saunders
BrainTrust

Access is about property rights. Should Amazon, which created and built its platform through its own efforts, be forced to bring any brand or product onto the site that wants access? In my view, the answer is a clear no.

Most of Senator Warren’s arguments are nonsense. She claims Amazon is a monopoly when it is nowhere near monopoly status. She objects to Amazon’s low pricing but presumably would also object to it hiking prices (which it could do if it were a monopoly). She even called for the merger with Whole Foods to be undone, as if that had somehow harmed consumers. The only thing that needs updating is Senator Warren’s understanding of how markets actually work.

Peter Charness
BrainTrust

Since when is being innovative, focused on the customer and the long term, and becoming successful, against the law? Price fixing, restraint of trade, I get as issues, but just going after Amazon because they are big?

wpDiscuz
Braintrust
"I’ll say it again, regulations haven’t caught up with (digital) realities. Amazon needed to throw a bone here in order to get the spotlight off, if only temporarily."
"Since when is being innovative, focused on the customer and the long term, and becoming successful, against the law?"
"If forced to operate under the requirements being discussed, the resulting platform would, in effect, become a public utility for ordering goods — not a retailer."

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