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Lawsuit Alleges Amazon is Rigging Prices to Cover Shipping Costs

A amazon frownlawsuit has been winding its way through the courts over the past couple months,  but it hasn’t gotten much attention in the press yet.

A group of consumers in Washington state are suing because sometimes the "free shipping" price Amazon offers to Prime members is more expensive than prices offered by 3rd-party sellers:

The argument is pretty straight forward. Amazon customers pay $79 a year for Amazon Prime, which gives members free two-day shipping on Prime-Eligible products. Amazon is being accused of encouraging vendors, who use Amazon to ship its items (referred to as Fulfillment by Amazon or FBA), of marking up the prices of these items to ultimately include shipping charges. Further, Amazon allegedly then gives these vendors priority by showing their items first in the Prime Member’s product search results.

By raising the price of the product, the lawsuit contends that Amazon is able to recoup the cost of shipping because it receives a percentage of the product’s price.

“The routine inclusion and encouragement of inclusion of shipping charges in the prices of FBA Prime-Eligible items constitutes a breach of Amazon’s promise to Prime Program Members that shipping charges would not be included in the prices of items offered for sale as FBA Prime-Eligible, and violates Amazon’s agreement that shipping would be ‘free’.”

Amazon recently increased the cost of a Prime membership to $99, and in exchange for that fee consumers are supposed to get free ebooks, free ebook loans, free streaming video, and reduced shipping costs including free 2-day shipping.

This blogger is willing to bet that this case is without merit. If there were merit then the lawsuit would have been filed years ago.

Washington state law says that a retailer can’t proclaim a free option and then simply bundle the cost into the retail price, and it is easy to see that this is not what Amazon is doing here. Amazon does not force Prime members to pay the prime price, nor do they block non-Prime members from paying that price. Prime members can pay the Prime price and get free 2-day shipping, and non-Prime members can also pay that price – and then pay extra for 2-day shipping (Thanks, Purple Lady!). In other words, the cost of shipping is not bundled.

On a related note, the state of Washington  has already looked into this; they have an office of consumer protection to investigate such issues. Fighting Deceptive Internet Sales Practices is listed as one of its main interests, but curiously enough Amazon is not listed as one of the companies sued or under investigation:

  • ATT Mobility
  • TJX
  • Dish
  • Direct TV
  • Tattoo Media

Amazon has been offering Prime since 2006, and Amazon has continued to offer the membership program for all that time. If Amazon were breaking the law don’t you think the state of Washington (not to mention the 49 other states) would have sued Amazon in court by now and forced Amazon to change the way Prime works?

Admittedly, the website has not been updated in several years (there’s no mention of the ebook price-fixing lawsuit) but any case against Amazon would have run its course by now and made it into the news. Given that the ebook antitrust lawsuit was filed a little over 2 years after Apple negotiated a consumer-unfriendly contracts with the 5 publishers, I would think that the state of Washington could have sued Amazon by now – assuming Amazon was breaking the law.

I can’t find any news reports of Amazon being sued over this (aside from this one case), and I know that the retailer has been sued any number of times in Europe for violating their competition laws, including for acts as simple as offering free shipping on books sold in France and Germany (it was ruled an illegal discount).

Did I miss something?

If so, the comments are open.

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Maria (BearMountainBooks) April 20, 2014 um 2:17 pm

Actually if I recall correctly the agreement is for free two-day shipping, not FREE shipping. So even if they are recouping some costs (and of course they are) they can easily argue that the customer isn’t just getting shipping–they’re getting two-day shipping, which can’t necessarily be compared to a lower cost item with just free regular shipping. Theoretically.

Not that it matters to me one way or another. They are going to mark the shipping into the goods just like any other site that offers "free shipping." As a consumer, I know that means "this is your total cost." They just choose not to break it into shipping and other.

fjtorres April 20, 2014 um 2:51 pm

There was a sloppy comparison article on CNET this week hyperventating over the same thing and that was the official answer from Amazon. Prime is about free two day delivery, not free shipping, and that only on some items.

The problem with the lawsuit is that:
1- Amazon never promised to price match Prime-eligible articles
2- in many cases, Amazon warns you that other vendors might have the same article for less
3- Non-prime customers buying the item from Amazon pay the same price but don’t get 2-day delivery.

Nate Hoffelder April 20, 2014 um 3:02 pm

Got a link? It’s not showing up in my search results.

fjtorres April 20, 2014 um 3:35 pm

Here ya go:

Check the comments.They were getting savaged for bad math and for comparing ordinary 3-5 day shipping costs to prime. Sloppy.

The Amazon quote:
Amazon, for its part, contends that the value of Prime shipping is on reliably knowing when a product will arrive at your doorstep. That is, the primary benefit isn’t in price, but the two-day delivery.

"The comparison is only relevant if you include two-day shipping on both purchases because Prime is a shipping service, not a pricing program. Otherwise, you are comparing apples to oranges," Amazon spokeswoman Julie Law said.

Shoppers who don’t pay for Prime can still get free standard shipping on Prime-eligible items, but they have to buy $35 worth of items, and it is delivered in five to eight days. Those who can’t stomach the fee increase will just have to wait a bit longer for their goods to arrive.

Nate Hoffelder April 20, 2014 um 3:50 pm

Ah, I missed it because I was looking for reports on the lawsuit.

M. May 5, 2014 um 11:13 pm

I complained about that on the forums and was laughed at by most other sellers, who knew all about it and said and did nothing. As for the A-Z policy, it forces returns, for any reason on a seller, hurting the seller. One of my buyers returned a book she damaged. damaged goods returned the seller must "eat" that loss. Amazon will ignore a sellers complaint of this nature, as they did mine, and charged me extra in the refund as Amazon stated my book did not live up to it’s expectations! I had pictures of the good in good condition and still Amazon "laughed" at me and hit me with return costs. Amazon seems to feel, in my opinion, that there are so many sellers, (which there are) why should they care about them, one down, hundreds left to take the place and for Amazon to take advantage of. Amazon should be sued as they are engaging in unfair business dealings. Not to mention if you speak your mind on the forums, you will be kicked off. Freedom of speech,,, not on Amazon.

Purple Lady April 20, 2014 um 3:38 pm

Here’s a product that has the warning "Note: This item may be available at a lower price from other sellers that are not eligible for Amazon Prime."

And fjtorres is correct – non prime customers pay the same price and don’t get free shipping, so I don’t see where the problem is.

Nate Hoffelder April 20, 2014 um 3:51 pm

Good point. I’m going to see if I can work this into the post.

Fbone April 20, 2014 um 5:44 pm

Where in the item listing is the "note?"

Anne April 20, 2014 um 6:14 pm

Right below the price.

Fbone April 20, 2014 um 6:45 pm

Thanks. The note doesn’t appear for me.

Syn April 21, 2014 um 4:21 am

I don’t see how they can remotely prove that. Sometimes Amazon is lower, and sometimes they are a few dollars higher. Usually, I spend the few dollars more to buy it from Amazon. Why? For the Customer service I know I will get if there is a problem. A couple extra higher for peace of mine, fast shipping and fast refunds is worth a few dollars more to me.

Mary April 21, 2014 um 8:17 pm

The note below the item appears for me. FBone, are you a Prime subscriber? I am, so maybe it only appears for those of us who have Prime since it would not be relevant to other buyers.

Fbone April 21, 2014 um 9:21 pm

No, I’m not. That explains it, thanks.

Often 3rd party retailers are less expensive than Amazon so I was wondering if Amazon started alerting us to that fact.

Michael W. Perry April 22, 2014 um 5:27 pm

Interesting discussion. But there’s another factor that may be present and could matter in a courtroom. That’s if Amazon is tweaking search results based on whether someone is a Prime member or not. The flow may work like this.

Amazon software asks: Prime Member?

* Yes: Show the more expensive listing of that item with that 'free' two-day shipping.

* No: Show the less expensive listing of that item, perhaps from other company.

It’s the search results that are being played with not the pricing.

That means:

* A non-Prime member who goes to the more expensive listing will still find it at that same, more-expensive price.

* Prime member who goes to the less expensive listing will still find it at that cheaper price. What I am not sure about is whether is whether he can use his Prime membership to get two-day shipping on an item that costs less.

What Amazon is doing isn’t offering the same listing but applying at two different prices. Its software may not even allow it to do that. It’s making Prime customers see, first and foremost, a more expensive listing from one company and non-Prime customers see a less expensive listing from another company.

That is not new. For printed books Amazon was playing with search results to steer potential customers to a more expensive listing about a decade ago. I know because I talked with an Amazon lawyer about precisely that and she defended the practice. She didn’t deny that a less expensive version might not even appear at all in the search listing. Her defense was that there was always a series of clicks on links that would take you to that less expensive edition of a book.

To Amazon’s credit, I’m not sure that still happens. It was really counterproductive, I told her, to send readers to a more costly edition from one publisher when they were likely to find the less expensive edition at another retailer at a lower price. Here’s what used to be an illustration of that:

I’ve got the most popular edition of Across Asian on a Bicycle as evidenced by the fact that only a free Kindle edition comes up ahead of it in a relevance search. But back a few years, I saw times when my edition did not appear at all on the two pages of search results. That was despite the fact that the Amazon listing for my edition was the #1 Google result then. (It’s #2 now after the free Gutenberg edition.)

The reason was that my paperback was priced around $11, while others had paperbacks priced over $20 and earned Amazon more money. They got visibility in the search. Mine did not. But, as that lawyer said, if someone went to my more expensive hardback edition, which was listed, they could get from it to my paperback edition.

Sneaky Amazon!

I’d add that this fact is well known around Amazon. I once mentioned it to an Amazon software developer. (I used to live in Seattle.) He rather bluntly told me, "Don’t trust Amazon search results."

This is probably yet another case of Amazon gaming search results to earn a bit more money. Whether it’s illegal, meaning whether it constitutes a deceptive and misleading business practice, is up to the courts to decide.

Nate Hoffelder April 22, 2014 um 5:34 pm

Amazon doesn’t always show the Prime price.

There have been a couple occasions where I checked an item enough times to be able to tell you that Amazon suggests different vendors, with different prices. They don’t always show the more expensive price.

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Justice October 15, 2014 um 10:26 pm

After all these years, Amazon is still attempting to scam people. If this much people attempted to file an lawsuit, they should at least change how they worded the terms and conditions. Since they haven’t, I assume they plan on continuing to stay an scammer. Never buying from Amazon again.

Greg October 30, 2014 um 6:10 pm

Is there ANYbody these days that operates their business in a honest and ethical manner?

Annoyed December 30, 2014 um 11:11 am

Amazon is clearly using gaming software and cookies to alter pricing. While I understand that Amazon needs to cover their shipping costs, it is really more the way they go about it … it is deceptive and problematic. A few years ago Amazon forced me to change my password and login on the anniversary date of my Prime membership renewal. Since that event the pricing shell game has taken on a carny vibe. I frequently buy elsewhere as a result.

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