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The FTC hasn't said anything about it, and there haven't been any charges filed by the Justice Department, but Amazon's "price maintenace" policies are there for anyone who wants to look.

Amazon provides the "Amazon Marketplace" as a place where independent sellers can offer their products for sale. For purposes of this discussion, I'll talk just about books.

Amazon provides a standardized "shipping and handling" charge to be imposed on all books purchased. It is a flat, per-book charge. Under this provision, there are no savings available to the buyer by purchasing several books from the same seller at the same time.

The buyer pays the price of the book plus the shipping charge, while the seller receives the amount the buyer has paid (including the flat shipping charge) less Amazon's fees, and must incur the actual shipping and handling costs.

For books that are sufficiently small and lightweight, there's enough padding in the shipping charge to cover actual shipping costs plus Amazon's fees, and still generate some cash flow. That's why books are frequently offered on Amazon for just a penny.

To the buyer, those penny books actually cost $3.50, while after paying Amazon's fees, the seller will still have a couple of bucks left with which to fulfill the order.

Without a way to offer a book for a negative price, this restricts competition among Amazon Marketplace sellers. This would be analogous to a shopping center operator establishing the minimum price of products by store operators within the mall. Shopping center operators are perhaps free to do that, but it's less clear than this is permissible in the context of the Amazon Marketplace.

In any case, this isn't the only Amazon Marketplace provision that creates a problem. Amazon Marketplace sellers must agree to the following rule:

You must always ensure that the item price and total price of an item you list on Amazon.com are at or below the item price and total price at which you offer and/or sell the item via any other online sales channel.

This means that the effect of the price maintenance activities within the Amazon Marketplace extends beyond the Amazon Marketplace, to the rest of the online world.

A third aspect of their policy is a discriminatory commission structure, which imposes an additional 99¢ commission on small sellers. This contributes additionally to the price maintenance effects of Amazon's policies.

A seller that wants to offer a product for sale for less than the amount of Amazon's standardized shipping fee cannot also offer it on the Amazon Marketplace. Because of Amazon's dominance of this distribution channel, this effectively inhibits competition and helps to maintain prices of books which would otherwise sell for less money.

Remember, you heard it here first!

Topic AmazonPriceMaintenance . { Edit | Ref-By | Attach | Diffs | r1.1 }
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Revision r1.1 - 13 Aug 2006 - 17:57 by EliMantel web search for EliMantel
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