A worker sorts out parcels in the outbound dock at the Amazon fulfillment center in Eastvale, California, on Aug. 31, 2021.
Watchara Phomicinda | MediaNews Group | The Riverside Press-Enterprise via Getty Images
It was late in the day on Oct. 27, 2021, when Fred Ruckel received the dreaded automated email from Amazon.
Amazon’s software had detected that Ruckel’s popular cat toy, called the Ripple Rug, was being sold somewhere else for a cheaper price. His product would no longer be shown in Amazon’s all-important buy box, an area of the listing where shoppers click “Add to Cart.” Ruckel is the sole seller of the Ripple Rug on Amazon, so the move all but ensured his product would disappear from the website, costing him thousands of dollars per day.
“Below is a list of product(s) in your catalog that are not currently eligible to be the Featured Offer because they are not priced competitively compared to prices for those products from retailers outside Amazon,” according to the email, which was viewed by CNBC.
Unbeknownst to him, Chewy was running a discount promotion, and dropped the price of his product by a few dollars to $39.99 – less than the $43 offer on Amazon. The algorithm had flagged it as a lower offer, even though the item on Chewy cost $48.54 after shipping and taxes. Ruckel had to make a choice: Lower the price on Amazon or ask Chewy to raise the price of his product. He opted for the latter.
Fred Ruckel’s company Snuggly Cat makes Ripple Rug, an interactive play mat for cats.
Nearly three years later, Ruckel’s experience hits at the core of a sweeping antitrust lawsuit filed last week by the Federal Trade Commission against Amazon. The agency accused Amazon of wielding its monopoly power to squeeze merchants and thwart rivals. For consumers, that’s led to artificially inflated prices and a degraded shopping experience, the agency alleges.
In the 172-page suit, the FTC said Amazon relies on an “anti-discounting strategy” and a “massive web-crawling apparatus that constantly tracks online prices” to stifle competition. The agency said Amazon punishes third-party sellers who offer cheaper products elsewhere by threatening to disqualify them from appearing in the buy box if it detects a lower price. Losing the buy box is an “existential threat” to sellers’ businesses, the complaint alleges.
The end result of these tactics, the FTC argues, is elevated prices across the web. The company steadily hikes the fees it charges sellers and prevents them from discounting on other sites, so sellers often inflate their prices off of Amazon, creating an “artificial price floor everywhere,” according to the complaint.
The FTC is seeking to hold Amazon liable for allegedly violating anti-monopoly law, though it has not yet outlined the specific remedies it believes would best resolve its concerns. In antitrust cases, remedies are often determined only after a court finds the defendant liable.
In a blog post, Amazon general counsel David Zapolsky said third-party sellers set their own prices on the marketplace. The company also invests in tools to help sellers offer “competitive prices,” he said.
“Even with those tools, some of the businesses selling on Amazon might still choose to set prices that aren’t competitive,” Zapolsky said. “Just like any store owner who wouldn’t want to promote a bad deal to their customers, we don’t highlight or promote offers that are not competitively priced.”
Zapolsky argued the FTC’s lawsuit could force it to stop highlighting low prices, “a perverse result that would be directly opposed to the goals of antitrust law.”
“Long overdue” lawsuit
On Amazon’s own forum for merchants, called Seller Central, several users cheered on the FTC and said they hoped it would result in changes to the company’s business practices. Amazon’s tense relationship with merchants has been well-chronicled over the years, with sellers expressing a range of grievances over issues like rising fees, an arcane suspensions process, and heightened competition on the marketplace from all sides, including the e-commerce giant.
“I think it’s great, Amazon deserves it,” one person commented, adding, “More should be coming on the way.” Amazon in recent years made the forum anonymous, but users must have a seller account in order to post.
Another post included a screenshot of a message Amazon sent to sellers the day after the FTC filed its complaint, which said, “As your partners, we know that this news may generate questions for you and our business together. This lawsuit does not change anything about our relationship with you or how we operate today.”
One user called it “BS verbiage,” adding, “Businesses that sell in their store are indeed customers. And which of us has gotten good customer service?”
Another user described their experience in the last 12 months of selling on Amazon as “being up all night at an effing casino but I’m stuck, the drugs are starting to wear off, but I’m trying to break even on the mortgage payment I’m using to play. That’s how it is selling on Amazon right now to me.”
The seller went on to describe the experience as a “race to the bottom.”
“It’s long overdue,” another commenter wrote. “When they close me down, I’m applying for a job with the FTC.”
Still, others commented that the FTC’s complaint is misguided. “Selling on Amazon is a life-changing opportunity and the amount of sellers that throw stones at the platform is astounding,” one user wrote.
Even sellers who may be sympathetic to the idea of regulating Amazon have concerns, specifically that the FTC’s highlighted issues aren’t necessarily ones that would make the seller and consumer experience better.
Scott Needham, who sells on Amazon and runs a product-finder tool for other Amazon sellers, said he was “surprised by some of the points that the FTC selected.”
“I have over the years been very critical of Amazon,” Needham told CNBC. “I’ve lost a lot of sleep because of some of the things that they have done. And the issues that they brought up, while they are interesting, they haven’t created me a lot of pain.”
Needham said he was particularly puzzled by the inclusion of the claims that Amazon is coercive in the way it encourages sellers to use its fulfillment service, known as Fulfillment by Amazon, or FBA.
Needham said many sellers “love FBA” because of its compelling value in terms of the price and promise to deliver two-day shipping. For many, using FBA doesn’t feel like a requirement, but they believe using it will make their businesses “easier and more effective.”
“I think that the power that Amazon wields over sellers is considerable and absolutely worth looking into,” Needham said. “But I’m not sure if this would actually change that.”
Scott Moller, an Amazon seller and co-founder of an agency that helps merchants run their storefronts, said the e-commerce giant has removed some of the challenges that used to be part of running an online business. With FBA, he said, he can ship an item into one of Amazon’s warehouses for $7.49 per package, while shipping it himself through a traditional carrier would cost him about $12.
“I don’t have to have my own warehouse,” said Moller, who sells grilling accessories on Amazon under the brand Grill Sergeant. “I can use their staff, their storage, and I can instantly also take the data of advertising, so I can target ads.”
He also disputed the FTC’s claim that Amazon has become littered with ads in search results, causing shoppers to wade through potentially less-relevant products of lesser quality.
“We can tailor our ads to hit exactly the consumers we want,” Moller said. “It’s a perfect marriage of a transaction, and that’s one of the beauties of what their marketplace offers.”
Needham said he feels he would have been more supportive of the case if it were filed a few years ago, pre-pandemic.
At that time, he said, “I would have felt, yes Amazon is a monopoly… But actually after Covid, into 2023, ecommerce has had a lot of big changes.” He added, “The competition is just not what it was in 2019.”
Competitors like Shopify and Walmart are increasingly viable alternatives for many categories of sellers, Needham said, not to mention rapidly growing Chinese e=commerce companies like Temu.
As a result, Needham said he’s seen some significant changes from Amazon. Among those is a greater ability for Amazon sellers to communicate with buyers, offering select customers certain promotions. Shopify, for example, gives sellers much more control over how they communicate with customers, Needham said, adding that although Amazon still controls the communication process, at least there is one.
“I wish it was a clear-cut case,” Needham said. “I have a vested interest in the marketplace doing really well, as a seller and as a service provider. And… this case, it doesn’t make the marketplace better for sellers.”
Concerns over Amazon pricing policies, fees
Many sellers have zeroed in on Amazon’s pricing policies and rising fees as rightful areas of concern in the FTC’s lawsuit.
Molson Hart, whose company Viahart sells toys on Amazon, has been a longtime critic of Amazon’s pricing policies. Hart complained of how Amazon’s seller fees impact pricing in a 2019 Medium post and later that year testified about his experience before a House committee.
Hart said Amazon sales comprise about 90% of his business, meaning any hit those sales take on Amazon has a considerable impact.
He recalled “24 anxious hours” in September 2022 when a third-party seller of his popular construction toy Brain Flakes listed the toy for a lower price on Target than it was offered on Amazon.
Molson Hart, CEO of Viahart, an educational toy company that sells on Amazon.
Courtesy: Molson Hart
“When our product was suppressed on Amazon, we lost $4,000 worth of sales. And you face some negative effects after that,” Hart said. “It’s harder to find your product in search. When your product disappears from Amazon, it sort of damages it in search, as far as I can tell.”
Even Needham, who was not fully convinced about the direction of the FTC’s case, said he sees some issues with the buy box. He said that sellers often find it frustrating if another platform listing their product, such as Walmart, offers a promotion that decreases the price more than that of the Amazon listing, and if that happens, Amazon will often “suppress the listing” rather than “chasing down the price.”
Opponents of the lawsuit, such as Moller, argue that Amazon aggressively polices prices because it only wants to show the best deals on its site.
“If Amazon discovers Walmart is selling my tool for $10 less, they’re going to say you need to match it,” Moller told CNBC. “The consumer is going to start on Amazon, then look elsewhere. Amazon wants to be a trusted marketplace, so to me, it’s a pro that they do this.”
Still, Needham said he’s noticed instances where Amazon will highlight its own listing in the buy box rather than those of competing sellers, even when Amazon’s price is slightly higher and other sellers have the Prime badge.
“That is a very clear case of this is not what’s best for the consumer,” Needham said. “The consumer doesn’t know that they could be saving more money by buying from somewhere else on the Amazon platform.”
Needham said the pricing issue has forced him to scale back one of his businesses on Amazon that resells branded goods. In some cases, he said, he’d have to price the same products Amazon sells at about 10% lower than the e-commerce giant in order to effectively compete, which also creates an “opportunity cost.”
Hart isn’t very interested in seeing Amazon broken up, but he said that if the lawsuit “ultimately results in Amazon ending their pricing policy, I think that that would be a good thing.”
Ruckel, the pet toy maker, said he stopped selling on Amazon in January, fed up by not only what he called “anticompetitive price fixing,” but also the “tremendous fees” the company charges. He said he was driven over the edge by a recently-announced policy requiring sellers to pay a “remeasure fee” if a customer returns a package in a bigger box than what it was shipped in, or the box isn’t the same size as the item dimensions listed on the product page.
Pulling the plug on Amazon wasn’t an easy decision, Ruckel said, estimating he’s lost $300,000 in sales in the time since he walked away from the platform. But he continues to sell on other platforms including Chewy, Etsy and his own website.
Despite the financial hit he expects to take this year, Ruckel said he feels he made the right decision.
“It’s not good for your mental health to sell on Amazon,” he said. “You’re walking on eggshells every minute of the day.”