Amazon is ending its restrictive pricing practice

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Amazon is doing away with a pricing policy in the US, dubbed “pricing parity” by critics, that disallows third-party sellers on its site from offering the same items on other platforms for a lower price, according to a person with direct knowledge of the decision cited by Axios.Business Insider Intelligence

This choice may have come in response to heightened antitrust scrutiny from politicians that the company’s been experiencing recently. For example, Senator Richard Blumenthal asked the Department of Justice and the Federal Trade Commission to investigate the requirements for possible antitrust violations in December.

And 2020 Presidential hopeful Senator Elizabeth Warren said that Congress should pass a law preventing large companies from owning a marketplace and selling on it simultaneously. The fact that Amazon dropped this pricing parity requirement for merchants on its marketplace in the EU due to regulatory pressure in 2013 further suggests that the prospect of regulation was the reason for its repeal in the US.

This pricing parity requirement gave Amazon a subtle but profound degree of control over the e-commerce market. The size of Amazon’s marketplace, combined with a pricing parity requirement, meant that the best Amazon’s competitors could do was offer the same price as the e-commerce giant on a number of products.

Furthermore, if Amazon were to raise a fee that caused a seller to elevate the price of a product on its platform, the change could ripple across competing marketplaces because the seller would theoretically have to update its prices on other platforms to achieve parity.

Terminating this policy removes this major advantage for Amazon and could alter the e-commerce landscape as the e-tailer loses its iron grip on minimum prices for many products.

This change will be liberating for merchants, which will gain more control over their pricing when selling beyond Amazon. Third-party sellers will now be able to set pricing on a more case-by-case basis across the different platforms they choose to sell on, as opposed to having to adhere to a minimum that matches their Amazon price. This could encourage merchants to sell on more marketplaces, potentially leading them to a lower degree of dependence on Amazon, a major shift given that a solid 44% of brands say they get more than half of their e-commerce sales through the e-tailer.
Marketplaces that compete with Amazon will now have a chance to gain an advantage. Perhaps the biggest beneficiary of the end of Amazon’s price parity practice will be competing marketplaces, as they’re getting a much better shot at outpricing the e-commerce giant than they previously had. For instance, if one of Amazon’s competitors can make it cheaper for a seller to operate on its platform than it would be to sell on Amazon, that merchant can now consider selling at a more competitive price with that marketplace, giving it an edge on Amazon. If Amazon’s competitors can employ this strategy with major brands selling on their marketplaces and Amazon’s, it could start to cause subtle shifts in the US e-commerce competitive landscape.

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Source: Business Insider – feedback@businessinsider.com (Greg Magana)