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I'm confused why this is anti-trust. Isn't this how all wholesale vendor deals work? Regular wholesale: "We'll buy 200 units from you at $20 each. I'll sell th

I'm confused why this is anti-trust. Isn't this how all wholesale vendor deals work? Regular wholesale: "We'll buy 200 units from you at $20 each. I'll sell them for some other amount, you don't need to care about it". Amazon in this example: "We'll buy 1 units from you at $20 each. I'll sell them for some other amount, you don't need to care about it. Finally, don't worry about the wholesale rate for a single unit, we will make another 200 offers like this very soon.". Why is there a legal difference between buying in bulk once and buying 1 many times? Disclaimer: I used to work for Amazon in Marketplace, but never on this feature.

bo1024 5y ago
It sounded to me like the problem part was where Amazon sold competing products, then used the agreement to price-fix between their own products and the third party's. Example: Amazon sells a dongle for $20, the competitors sell them for $20. Amazon makes a deal with each competitor, then raises all the prices to $25. (edit) I think this kind of example also: The competitor's dongle is priced at $24 on Best Buy. Amazon raises competitor's the price to $24, but keeps its own dongle priced at $20. > The “Sold by Amazon” program resulted in prices for some products increasing when Amazon programmed its pricing algorithm to match the prices that certain external retailers offer to online consumers. > As a result, when prices increased, some sellers experienced a marked decline in the sales and resulting profits from products enrolled in the program. Faced with price increases, online customers sometimes opted to buy Amazon’s own branded products — particularly its private label products. This resulted in Amazon maximizing its own profits regardless of whether consumers paid a higher price for sales of products enrolled in the “Sold by Amazon” program or settled for buying the same or similar product offered through Amazon.
- deleted 5y ago
  [deleted]
- blocked_again 5y ago
  Well, the competitor did agree to sell the items to Amazon. Nobody forced them. They did it for economic benefit. So I don't understand the problem here.
  - daemoens 5y ago
    They raised the price of his goods so that they could sell their own product for cheaper.
    - blocked_again 5y ago
      They did bought the goods from him beforehand. And he agreed to sell. He should have considered the possibility that Amazon has option to later sell the items as a higher price. Isn't that obvious to any seller?
      - brodock 5y ago
        Amazon does not buy and keep a stock, they charge you for the privilege of selling in their marketplace: > Sellers then bore the risk of having their products not sell in a timely manner, or at all, while still paying Amazon for things like storage fees of their enrolled products
  - bee_rider 5y ago
    Our system is not a totally free market, we have consumer protection and antitrust regulations to avoid some of the possible negative outcomes there.
    - blocked_again 5y ago
      I don't really buy that consumer protection and antitrust regulations actually result in a better free market. I think the market is better off doing it's thing rather than a bunch of politicians trying to make it more efficient.
      - pixl97 5y ago
        Well then, hopefully you dont want IP laws either.
        5y ago
- cmroanirgo 5y ago
  "Loss Leader" is the term and the problem. A wholesaler sells to a reseller at their usual price. Reseller deliberately sells less than RRP & sometimes less than their buy price. It's a good way to guarantee the reseller "owns" the market. Then, if the reseller is big enough and has captured the market, has the leverage to tell the wholesaler to lower the wholesale price and/or the reseller gets it made elsewhere and becomes the wholesaler. It's pretty nasty. It happened to my family business. A big box chain sold the same products for less than their buy price. We were close friends with the wholesaler ( a timber mill), and the sales rep even went to the big box to get them to lift their price. 2 years after shutting us down, the big box store sells the same product, from the same source, for 50% more than we ever used to sell it for.
  - galago 5y ago
    There used to be a restaurant chain called "Boston Market" (there are a few left). One of their signature products was cooked rotisserie chickens. What killed them was not a direct competitor, but the fact that Costco did, and still sells a similar product at a one dollar loss per chicken. The loss leader is going on forever.
    - DoneWithAllThat 5y ago
      They have over 300 locations…
    - eru 5y ago
      Why does this have to be a loss leader? I'm pretty sure Costco can probably make a profit on that chicken?
  - fragmede 5y ago
    It's more nefarious than simple loss-leadering and undercutting your competitor's margins. That's business 101. Amazon is playing business 201. Amazon took over pricing for the widget, and then undercut that price with their own. Stay with me for a second because 201 is kinda complicated. Widget usually sells for $25. Amazon agrees to buy 1 from you at $20 (you give them a volume discount because it's Amazon buying so you figure it'll sell like hotcakes. You still make a profit at $20.). Amazon then prices your widget on their marketplace for $30. Seems fine so far. The trick is that Amazon turns around and sells their widget, made by an alternate supplier, for $23. Your deal with Amazon means you no longer have control over how much your widget sells for, just that you're selling them to Amazon at $20 and Amazon gets to charge however much they want. To no one's surprise, your widget, priced at $30, doesn't sell because Amazon's is $23. You're not allowed to turn around and sell them on Amazon's marketplace at all, so they just sit there at $30 and don't sell.
clintonc 5y ago
I am Amazon, and you sell cat mugs. I offer you a "sold by Amazon" contract, which you accept. I start manufacturing my own cat mugs, and sell them at a price that undercuts yours. You have no way to change your price, so your mugs no longer compete effectively with Amazon cat mugs. Most of your sales go away, because Amazon is so dominant as an online marketplace (NOT as a cat mug manufacturer). This is anti-competitive because Amazon used its dominance as an online retailer to become a dominant cat mug manufacturer.
- Spivak 5y ago
  How is this different from Kroger getting to set the prices of both Lay’s and their store brand chips?
  - clintonc 5y ago
    It would be the same, except - Kroger isn't 50% of all grocery stores on earth - Kroger paid money up front for your potato chips - Kroger isn't charging you for storing your potato chips
    - ineedasername 5y ago
      In order 1) But most supermarkets do this in similar ways. Not quite the same as a single entity, but close enough (more like a cartel?) that I'm not sure I see much of a difference. 2) This is the major difference in my mind, but other vendors can still sell for less, so I'm not sure how much competition is stiffled. 3) Well, they actually are. It's called slotting fees. They can simply be for warehouse storage and a place in the store, or at higher levels can be paid to have products placed in specific locations, e.g., eye-level on shelves. This seems similar to signing up for the program in the OP to have your product highlighted as an Amazon-sponsored product. I don't like many of Amazon's practices, but I'm not convinced this particular one rises to anti-trust.
      - greycol 5y ago
        It's also worth noting that with 1 you can find plenty of farmers and small producers do complain about the anti trust issuese of supermarkets in the same way.
indymike 5y ago
> I'm confused why this is anti-trust. Isn't this how all wholesale vendor deals work? Amazon has to have it tough - it is often both a retailer and distributor at the same time. The problem here was getting multiple retailers (of which Amazon was one) to agree to set pricing (this is textbook price fixing). If I leave out the part about Amazon being the marketplace, this seems like a slam-dunk price fixing case. If we view it like a wholesale agreement, I think it's a lot harder to see what the AG was after.
upsidesinclude 5y ago
mdasen 5y ago
I think there are a few differences. 1) Amazon has the kind of market power that triggers anti-trust concerns. You can't get anti-trust concerns when you're a small player. 2) It sounds like Amazon is not offering to buy units at a set price. They're offering to give the supplier $X if they sell the item. That means that Amazon can decide whether or not they want to sell the item - and the supplier has agreed not to compete with Amazon. 3) Amazon isn't saying, "we'll buy 1...don't worry, we'll make 200 more offers soon." It's more like, "we'll buy 1...if we don't buy any more, you're now prohibited from selling directly on our platform." Let's take it to the extreme and, for a moment, assume Amazon is trying to be evil. Amazon wants to push AmazonWidget and wants to push YourWidget out of the market. They want to price AmazonWidget at $25. They see that you're selling YourWidget at $25. It's a brand-name that customers will want at $25. Amazon calculates that you're probably making $18 in profit so the come to you and say they're willing to give you $20 per sale. You accept. Amazon then sets the price of YourWidget at $1,000 and not a single customer orders it. AmazonWidget becomes a huge seller. Let's say that AmazonWidget costs Amazon $15 and they want to sell it for $25. You've been selling YourWidget for $25. By taking control of the pricing of your item, they can make sure that AmazonWidget doesn't have to compete with YourWidget on price. They can price YourWidget at $30 so that they make $10 whether someone buys an AmazonWidget or a YourWidget. Previously, they would have had to price AmazonWidget below $25 to deal with the fact that you were selling YourWidget at $25. The legal difference is about using market power against someone and against consumers. Amazon is also trying to play both sides - as a marketplace where anyone can sell and as a direct seller. If you get someone to say that they won't compete with you in exchange for a deal where they sell your item and then they take steps to lower the sales of your item, that's a big deal. By controlling the selling price of the item and prohibiting the supplier from competing with that price, Amazon controls how many get sold and whether it's more profitable for them to push users to different products. As the article points out, the big issue is that the prices stabilized at higher levels. If the price was usually $25 before and is now usually $30, Amazon has taken steps to raise the price level by taking out competition. This hurts consumers (with higher prices) and suppliers (because it lowered the number of products sold and offered a way for Amazon to replace purchases of their third-party products with Amazon products). How is this different from a supermarket deciding to raise prices on a third party product to favor its own? I think the key difference is that Amazon is both a marketplace for sellers to sell directly and a retailer. Amazon's dominant position in online shopping has been fueled by third-party sellers on their platform. If you the use that dominance to hurt those sellers and consumers, you're changing the game after people have gotten locked into using your platform. For example, sellers need Amazon because consumers have Prime. Consumers got Prime because of the wide array of third party sellers. When you then take steps that work against those consumers and sellers due to your now-strong market position, that's a problem. Let's say that Amazon said, "we should be able to do what we want like anyone else!" I'd say they should - but every person that currently has Prime should see that subscription canceled immediately and be prohibited from being a Prime subscriber for 2 years. That way, Amazon wouldn't have the market power over sellers and consumers that it currently enjoys and alternatives might become a big platform. The problem, in my mind, is when a company creates rules, builds market power, and then wants to change those rules when it's in a dominant position. If they want a reset on that dominant position, that's fair - but they never want a reset on that dominant position. I don't actually think Amazon really meant to do wrong in this case. I think it can be an area where it's not intent that matters. I'm guessing that their algorithms likely started adjusting the price due to the realities of their profit margins. Before, they had their AmazonWidget priced at $22 because it needed to be at least $3 cheaper than YourWidget. They wanted a $10 margin, but couldn't get it. Once they were in control of YourWidget pricing, it settled on $30 which is the $10 margin they want - and then there was room for AmazonWidget to be $25. That seems like the most likely scenario to me. Amazon started identifying good-selling products and thought they'd be better at optimizing sales and profits by controlling the pricing of them. They probably are better. The problem is that it started optimizing for Amazon and not for that seller and so if sales went down 75% on YourWidget, they didn't care. But the issue is that Amazon took steps to reduce/prohibit competition and it ended up raising prices after they had built up enormous market power under different rules.

bo1024 5y ago

It sounded to me like the problem part was where Amazon sold competing products, then used the agreement to price-fix between their own products and the third party's. Example: Amazon sells a dongle for $20, the competitors sell them for $20. Amazon makes a deal with each competitor, then raises all the prices to $25. (edit) I think this kind of example also: The competitor's dongle is priced at $24 on Best Buy. Amazon raises competitor's the price to $24, but keeps its own dongle priced at $20. > The “Sold by Amazon” program resulted in prices for some products increasing when Amazon programmed its pricing algorithm to match the prices that certain external retailers offer to online consumers. > As a result, when prices increased, some sellers experienced a marked decline in the sales and resulting profits from products enrolled in the program. Faced with price increases, online customers sometimes opted to buy Amazon’s own branded products — particularly its private label products. This resulted in Amazon maximizing its own profits regardless of whether consumers paid a higher price for sales of products enrolled in the “Sold by Amazon” program or settled for buying the same or similar product offered through Amazon.

deleted 5y ago
[deleted]
blocked_again 5y ago
Well, the competitor did agree to sell the items to Amazon. Nobody forced them. They did it for economic benefit. So I don't understand the problem here.
- daemoens 5y ago
  They raised the price of his goods so that they could sell their own product for cheaper.
  - blocked_again 5y ago
    They did bought the goods from him beforehand. And he agreed to sell. He should have considered the possibility that Amazon has option to later sell the items as a higher price. Isn't that obvious to any seller?
    - brodock 5y ago
      Amazon does not buy and keep a stock, they charge you for the privilege of selling in their marketplace: > Sellers then bore the risk of having their products not sell in a timely manner, or at all, while still paying Amazon for things like storage fees of their enrolled products
- bee_rider 5y ago
  Our system is not a totally free market, we have consumer protection and antitrust regulations to avoid some of the possible negative outcomes there.
  - blocked_again 5y ago
    I don't really buy that consumer protection and antitrust regulations actually result in a better free market. I think the market is better off doing it's thing rather than a bunch of politicians trying to make it more efficient.
    - pixl97 5y ago
      Well then, hopefully you dont want IP laws either.
      - 5y ago
cmroanirgo 5y ago
"Loss Leader" is the term and the problem. A wholesaler sells to a reseller at their usual price. Reseller deliberately sells less than RRP & sometimes less than their buy price. It's a good way to guarantee the reseller "owns" the market. Then, if the reseller is big enough and has captured the market, has the leverage to tell the wholesaler to lower the wholesale price and/or the reseller gets it made elsewhere and becomes the wholesaler. It's pretty nasty. It happened to my family business. A big box chain sold the same products for less than their buy price. We were close friends with the wholesaler ( a timber mill), and the sales rep even went to the big box to get them to lift their price. 2 years after shutting us down, the big box store sells the same product, from the same source, for 50% more than we ever used to sell it for.
- galago 5y ago
  There used to be a restaurant chain called "Boston Market" (there are a few left). One of their signature products was cooked rotisserie chickens. What killed them was not a direct competitor, but the fact that Costco did, and still sells a similar product at a one dollar loss per chicken. The loss leader is going on forever.
  - DoneWithAllThat 5y ago
    They have over 300 locations…
  - eru 5y ago
    Why does this have to be a loss leader? I'm pretty sure Costco can probably make a profit on that chicken?
- fragmede 5y ago
  It's more nefarious than simple loss-leadering and undercutting your competitor's margins. That's business 101. Amazon is playing business 201. Amazon took over pricing for the widget, and then undercut that price with their own. Stay with me for a second because 201 is kinda complicated. Widget usually sells for $25. Amazon agrees to buy 1 from you at $20 (you give them a volume discount because it's Amazon buying so you figure it'll sell like hotcakes. You still make a profit at $20.). Amazon then prices your widget on their marketplace for $30. Seems fine so far. The trick is that Amazon turns around and sells their widget, made by an alternate supplier, for $23. Your deal with Amazon means you no longer have control over how much your widget sells for, just that you're selling them to Amazon at $20 and Amazon gets to charge however much they want. To no one's surprise, your widget, priced at $30, doesn't sell because Amazon's is $23. You're not allowed to turn around and sell them on Amazon's marketplace at all, so they just sit there at $30 and don't sell.

clintonc 5y ago

I am Amazon, and you sell cat mugs. I offer you a "sold by Amazon" contract, which you accept. I start manufacturing my own cat mugs, and sell them at a price that undercuts yours. You have no way to change your price, so your mugs no longer compete effectively with Amazon cat mugs. Most of your sales go away, because Amazon is so dominant as an online marketplace (NOT as a cat mug manufacturer). This is anti-competitive because Amazon used its dominance as an online retailer to become a dominant cat mug manufacturer.

Spivak 5y ago
How is this different from Kroger getting to set the prices of both Lay’s and their store brand chips?
- clintonc 5y ago
  It would be the same, except - Kroger isn't 50% of all grocery stores on earth - Kroger paid money up front for your potato chips - Kroger isn't charging you for storing your potato chips
  - ineedasername 5y ago
    In order 1) But most supermarkets do this in similar ways. Not quite the same as a single entity, but close enough (more like a cartel?) that I'm not sure I see much of a difference. 2) This is the major difference in my mind, but other vendors can still sell for less, so I'm not sure how much competition is stiffled. 3) Well, they actually are. It's called slotting fees. They can simply be for warehouse storage and a place in the store, or at higher levels can be paid to have products placed in specific locations, e.g., eye-level on shelves. This seems similar to signing up for the program in the OP to have your product highlighted as an Amazon-sponsored product. I don't like many of Amazon's practices, but I'm not convinced this particular one rises to anti-trust.
    - greycol 5y ago
      It's also worth noting that with 1 you can find plenty of farmers and small producers do complain about the anti trust issuese of supermarkets in the same way.

indymike 5y ago

> I'm confused why this is anti-trust. Isn't this how all wholesale vendor deals work? Amazon has to have it tough - it is often both a retailer and distributor at the same time. The problem here was getting multiple retailers (of which Amazon was one) to agree to set pricing (this is textbook price fixing). If I leave out the part about Amazon being the marketplace, this seems like a slam-dunk price fixing case. If we view it like a wholesale agreement, I think it's a lot harder to see what the AG was after.

upsidesinclude 5y ago

mdasen 5y ago

I think there are a few differences. 1) Amazon has the kind of market power that triggers anti-trust concerns. You can't get anti-trust concerns when you're a small player. 2) It sounds like Amazon is not offering to buy units at a set price. They're offering to give the supplier $X if they sell the item. That means that Amazon can decide whether or not they want to sell the item - and the supplier has agreed not to compete with Amazon. 3) Amazon isn't saying, "we'll buy 1...don't worry, we'll make 200 more offers soon." It's more like, "we'll buy 1...if we don't buy any more, you're now prohibited from selling directly on our platform." Let's take it to the extreme and, for a moment, assume Amazon is trying to be evil. Amazon wants to push AmazonWidget and wants to push YourWidget out of the market. They want to price AmazonWidget at $25. They see that you're selling YourWidget at $25. It's a brand-name that customers will want at $25. Amazon calculates that you're probably making $18 in profit so the come to you and say they're willing to give you $20 per sale. You accept. Amazon then sets the price of YourWidget at $1,000 and not a single customer orders it. AmazonWidget becomes a huge seller. Let's say that AmazonWidget costs Amazon $15 and they want to sell it for $25. You've been selling YourWidget for $25. By taking control of the pricing of your item, they can make sure that AmazonWidget doesn't have to compete with YourWidget on price. They can price YourWidget at $30 so that they make $10 whether someone buys an AmazonWidget or a YourWidget. Previously, they would have had to price AmazonWidget below $25 to deal with the fact that you were selling YourWidget at $25. The legal difference is about using market power against someone and against consumers. Amazon is also trying to play both sides - as a marketplace where anyone can sell and as a direct seller. If you get someone to say that they won't compete with you in exchange for a deal where they sell your item and then they take steps to lower the sales of your item, that's a big deal. By controlling the selling price of the item and prohibiting the supplier from competing with that price, Amazon controls how many get sold and whether it's more profitable for them to push users to different products. As the article points out, the big issue is that the prices stabilized at higher levels. If the price was usually $25 before and is now usually $30, Amazon has taken steps to raise the price level by taking out competition. This hurts consumers (with higher prices) and suppliers (because it lowered the number of products sold and offered a way for Amazon to replace purchases of their third-party products with Amazon products). How is this different from a supermarket deciding to raise prices on a third party product to favor its own? I think the key difference is that Amazon is both a marketplace for sellers to sell directly and a retailer. Amazon's dominant position in online shopping has been fueled by third-party sellers on their platform. If you the use that dominance to hurt those sellers and consumers, you're changing the game after people have gotten locked into using your platform. For example, sellers need Amazon because consumers have Prime. Consumers got Prime because of the wide array of third party sellers. When you then take steps that work against those consumers and sellers due to your now-strong market position, that's a problem. Let's say that Amazon said, "we should be able to do what we want like anyone else!" I'd say they should - but every person that currently has Prime should see that subscription canceled immediately and be prohibited from being a Prime subscriber for 2 years. That way, Amazon wouldn't have the market power over sellers and consumers that it currently enjoys and alternatives might become a big platform. The problem, in my mind, is when a company creates rules, builds market power, and then wants to change those rules when it's in a dominant position. If they want a reset on that dominant position, that's fair - but they never want a reset on that dominant position. I don't actually think Amazon really meant to do wrong in this case. I think it can be an area where it's not intent that matters. I'm guessing that their algorithms likely started adjusting the price due to the realities of their profit margins. Before, they had their AmazonWidget priced at $22 because it needed to be at least $3 cheaper than YourWidget. They wanted a $10 margin, but couldn't get it. Once they were in control of YourWidget pricing, it settled on $30 which is the $10 margin they want - and then there was room for AmazonWidget to be $25. That seems like the most likely scenario to me. Amazon started identifying good-selling products and thought they'd be better at optimizing sales and profits by controlling the pricing of them. They probably are better. The problem is that it started optimizing for Amazon and not for that seller and so if sales went down 75% on YourWidget, they didn't care. But the issue is that Amazon took steps to reduce/prohibit competition and it ended up raising prices after they had built up enormous market power under different rules.