The attorney general for the District of Columbia Karl Racine recently announced a new antitrust complaint against Amazon over de facto price parity clauses with vendors on the platform. The suit alleges that Amazon’s use of these provisions (commonly referred to as most-favored-nation clauses or “MFNs”) as the dominant online retail platform in the US sets an artificially high price floor for vendors.
While Amazon’s conduct has been the subject of ongoing review for some time, the DC AG’s decision to go it alone here is notable. Following a split last year between the federal and state enforcers in the suits against Google and Facebook, the elections suggested the potential for more coordinated enforcement moving forward. The experience with Amazon highlights that antitrust enforcement in the tech sector both in the US and globally will continue to follow a fractured and patchwork approach for the foreseeable future.
MFNs under Scrutiny
The basic theory of the relatively short complaint is that Amazon uses explicit or de facto MFN clauses to ensure that none of its suppliers or third-party vendors can collaborate with existing or potential competitors to offer lower prices. In addition to explicit price parity clauses used before 2019, the complainant specifically focuses on Amazon’s practical enforcement of its “Fair Pricing Policy” which prevents vendors from setting prices “significantly higher than recent prices offered on or off Amazon.” Vendors that violate this policy are allegedly removed from the “Buy Box” and demoted to less prominent placement on Amazon Marketplace – preventing effective access to Amazon’s customer base.
While the general impact of MFNs has been the subject of considerable debate, the DC AG will have to prove that the relevant provision had an anticompetitive effect and was not reasonably necessary to achieve procompetitive outcomes. The theory is that the de facto MFN in Amazon’s contracts with third-party vendors – combined with Amazon’s market power in a US online retail market – results in artificially higher prices across all online retail sites because vendors are unable to offer lower prices on websites that charge lower fees (including their own).
The DC AG will therefore need to prove a counterfactual as to where prices would have been set absent these provisions. Where the federal agencies have challenged this theory for MFNs in the past, these have typically been “MFN Plus” clauses requiring more favorable treatment. Unlike enforcement targeting travel platforms in other jurisdictions, the DOJ has previously declined to challenge MFN agreements used by these online platforms.
So why tackle Amazon alone?
While this case is the first investigation against Amazon to result in a formal complaint in the US, the underlying theories of the case are not new. Amazon reportedly removed the more straightforward price parity clause in its vendor contracts following regulatory scrutiny in Europe in 2013 and in the US in 2019. The practices have garnered the attention of US enforcers and Congress, including in a report by the House Antitrust Subcommittee drafted with FTC Commissioner nominee (and noted Amazon critic) Lina Khan.
Under the current administration where closer federal coordination was expected, the decision for a small jurisdiction like DC to ultimately go it alone seems like an outlier. Coalitions of states have traditionally banded together and often coordinated with the federal authorities, going back at least to the Microsoft case two decades ago. Racine currently heads the organization that commonly facilitates this coordination. When asked why the suit was not broad by a coalition here, Racine said he felt the MFN issue was “sufficiently discrete” for his office to handle.
While some have suggested that this suit may be a test case for broader enforcement where states are better suited to seek monetary penalties, others have speculated that this is just a signal of Racine’s broader aspirations as a rumored nominee for an FTC appointment.
Outlook for future enforcement
Amazon is reportedly still subject to a number of broader investigations. While details are not public, the FTC is reportedly working with the attorneys general in New York and California on broad investigations of Amazon Marketplace. The European Commission also has a public investigation open into potential self-preferencing in certain functionality like the Buy Box and its use of non-public independent seller data.
Ultimately, the DC suit may be a test case that gets consolidated with any complaints by other federal or state enforcers going forward (particularly if Racine receives an FTC appointment). Given the experience to date in the divided state and federal cases against Google, however, we expect the patchwork approach to enforcement to continue as different enforcers seek to assert their own distinct theories and pursue their own agendas.
Lawsuit by attorney-general claims sellers should be allowed to offer lower prices on other platforms