Amazon’s Minimum Margin Agreements Restrain Competition Among Online Retailers, Class Action Alleges

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A proposed class action lawsuit alleges Amazon has wielded minimum margin agreements (MMAs) with suppliers to prevent other online retailers from offering the same products Amazon sells at a lower price. 

According to the 55-page complaint out of Washington, Amazon’s MMAs violate the federal prohibition on price fixing in that they essentially set a minimum retail price for products. By restraining competition among online rivals, the suit claims, Amazon has harmed consumers by artificially raising the online prices for thousands of retail brands the company sells. 

The filing states that under an Amazon MMA, a supplier guarantees both that Amazon will be able to price the supplier’s product competitively against other online retailers “at least 95% of the time” and that Amazon will receive a minimum margin on each sale regardless of the actual price at which a particular item is sold by the defendant. Per the complaint, Amazon enforces its MMAs by requiring suppliers to compensate it monthly for any lost margins stemming from the lowering of its retail price to match that of a competitor. 

“To illustrate how the MMAs work, a supplier may agree, for example, to sell its product at a wholesale price of $5 per unit and that it will compensate Amazon if it receives less than $4 over its marginal cost. If Amazon sells at least 95% of the supplier’s product for $9 or more, the supplier owes Amazon no money. But if, in this example, Amazon lowers its price to $8 to match a competitor’s price that month, then the supplier will owe Amazon $1 for every product sold at $8 beyond the 5% threshold.” 

Instead of risking its own profit margins to compete with retail rivals on price, Amazon ultimately shifts this risk onto its suppliers, the lawsuit alleges. As a result, Amazon has ensured that its suppliers adopt a de facto minimum retail price, or floor price, for their items market-wide.

“By requiring suppliers to compensate Amazon whenever their products sell below the agreed floor price, the MMA agreements fix prices by penalizing suppliers unless they suppress competitive pricing from Amazon’s rivals,” the case contends. 

Moreover, the MMAs add to a supplier’s cost of doing business and exist merely to accommodate Amazon, not as a means of promoting the supplier’s products or fostering price competition in the marketplace, the lawsuit says. In a competitive market, the suit expands, a supplier would benefit by rotating price promotions with different retailers to ensure a broad range of distribution options. The case, citing former senior Amazon category manager Martin Heubel, says that providing margin support to the defendant is “ineffective” for suppliers and leads to higher consumer prices. 

A supplier who refuses Amazon’s demand for “back-margin funding,” the lawsuit alleges, will find its product “delisted, no longer on order, or suppressed from most consumer searches.” 

The lawsuit looks to represent all persons who, on or after July 13, 2018, purchased goods from Amazon subject to its minimum margin agreements.

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