Brand Enforcement / 10.14.2020

Consumer Report Alleges Amazon Marketplace Price Gouging

By Jon Groza & Kyle Stroup

price gougingAs the COVID-19 pandemic swept the country in the spring, consumer demand shifted. While grocery store shelves became barren, consumers looked to e-commerce marketplaces to purchase essential items such as personal protective equipment, necessary household items and sanitizers. But because demand had abruptly shifted, prices for those products shifted as well—with some products experiencing large increases in price. A consumer advocacy group released a report of the Amazon Marketplace price increases in the months since the pandemic.

The report suggests that Amazon and its sellers are gouging prices of certain products. However, price gouging is outlawed in a majority of states. And, while the price gouging laws from state to state differ, the laws generally define price gouging as an abrupt increase in price of a necessary or essential product that occurs because of an emergency and during a state-issued state of emergency. Although price gouging laws are only in effect when a state declares a state of emergency, nearly every state and territory within the United States declared a state of emergency or public health emergency in response to the COVID-19 pandemic—meaning that price gouging laws are in effect and remain in effect until those emergencies are lifted. Certain products at issue throughout the COVID-19 pandemic have been sanitizers and soaps, household essentials such as flour, sugar and toilet paper, and personal protective equipment such as gloves and masks.

The consumer report references price increases on the Amazon Marketplace. The Kentucky Attorney General’s office sought to enforce Kentucky’s price gouging laws. However, a Kentucky federal court analyzed the application of state price gouging laws to e-commerce, specifically the Amazon Marketplace. The federal court reasoned that because the Amazon Marketplace is considered interstate commerce, in that the goods are sold across state lines, Kentucky’s price gouging laws do not apply to the Amazon Marketplace. In so doing, the federal court found that if the federal government wanted to prohibit price gouging on products sold in interstate commerce, it would have done so; this theory is known as the dormant commerce clause. With that in mind, the Kentucky federal court, through a preliminary injunction, prohibited Kentucky’s Attorney General from enforcing its price gouging laws related to products sold on the Amazon Marketplace.

Although those businesses selling on the Amazon Marketplace and other e-commerce platforms may cite to the Kentucky federal court case, it is advised that businesses analyze their pricing strategies on e-commerce platforms. Amazon’s fair pricing policy states that it “regularly monitors the price of items on [the Amazon Marketplace].” However, if Amazon finds pricing practices that “harms customer trust, Amazon can remove the Buy Box, remove the offer, suspend the ship option or, in serious or repeated cases, suspending or terminating selling privileges.”

Amazon goes on to list specific examples that “harm customer trust.” One such example that e-commerce businesses should be cautious of is “setting a price on a product or service that is significantly higher than recent prices on or off Amazon.”

While violating state law is a concern for businesses, so too should a suspension of selling privileges on the Amazon Marketplace. As Amazon continues to be the largest e-commerce retailer, businesses need to sell on the Amazon Marketplace, and remain selling on the Amazon Marketplace, especially as traditional retail establishments continue to close or limit hours and capacity. An Amazon seller account suspension or termination can result in a costly appeals process as the e-commerce business will be shut down for an unknown period of time.

With this and price gouging laws in mind, businesses should analyze their pricing trends relative to their competitors in the Amazon Marketplace. Businesses should ask not only if their products are competitively priced relative to similar items, but also whether their products are fairly priced. Businesses can analyze previous price points for their products on the Amazon Marketplace in order to avoid account closures or suspensions.

For assistance in navigating price gouging and the Amazon Marketplace, feel free to reach out to Jon Groza at 216.736.7255 or jwg@kjk.com or Kyle Stroup at 216.736.7231 or kds@kjk.com.

 

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