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Hardware stores’ shelves were allegedly emptied to fill orders on Amazon.
CAVEAT VENDOR

Amazon profits from the price gouging it says it’s trying to stamp out

Jeremy B. Merrill
By Jeremy B. Merrill

Investigative reporter

From our Obsession

Big Tech

Looking at Big Tech as the next Big Oil.

Juan Aune visited a Lowe’s hardware store in Anchorage, Alaska, in late February and bought hundreds of boxes of N95 masks—at $21.98 each, allegedly bragging to an employee that he was flipping the masks and making a huge profit on each box. He also visited a Home Depot and other hardware supply stores.

Aune then went on to sell 477 of the 20 packs of masks on Amazon’s online store for about $90 each.

Amazon helped out by, at the very least, directing customers searching for masks to Aune. Amazon collects a fee, too, for every sale it facilitates.

Aune was sued by Alaska’s attorney general in April for unfair and deceptive trade practices; Aune’s court filings don’t dispute the basic facts that Aune bought and re-sold the masks.

Amazon also allegedly helped Brian Gonzalez, of Los Angeles, sell 19 eight-ounce bottles of Purell hand sanitizer for as much $54.90 each. Los Angeles’s city attorney charged Gonzalez with violating California’s price-gouging laws.

Amazon wasn’t charged in either case.

The company reported Aune to the authorities, earning it heaps of praise from Kevin Clarkson, Alaska’s attorney general for its “good citizenship.” The Los Angeles city attorney cited Amazon’s help in a press release about the prosecution. Amazon has bragged that it reported suspected price-gougers to 42 state attorneys general, including California and Alaska.

Because Amazon facilitated the sales, Aune’s attorney has argued in court filings Alaska must also sue Amazon, since it had a  role in the allegedly illegal sales too. (His court filings also argue the high-priced sales weren’t illegal at all and that Alaska’s rules don’t apply because the customers weren’t in Alaska.) Gonzalez couldn’t be reached for comment and court records didn’t indicate if he has a lawyer.

Amazon’s own rules seem to prohibit Gonzalez and Aune’s sales. “Setting a price on a product or service that is significantly higher than recent prices offered on or off Amazon,” is a “pricing practice that harms customer trust,” and can lead to punishment, Amazon’s rules say.

The massive, self-contained e-commerce universe called Amazon has expanded steadily over the decades: first, third-party sellers could offer their wares. Later, it offered ads in Amazon’s search results and shipping from Amazon’s warehouses. Recently, Amazon built its own last-mile delivery network in the US.

But one thing Amazon apparently hasn’t gotten to yet? Proactively detecting the supposedly banned sales.

Earlier this month, Amazon asked the US government to explicitly give it immunity from prosecution for facilitating price gouging when it suggested a federal price gouging rules “should apply to the party who actually sets the price of a product”—which, in Amazon’s view, would “help law enforcement target the source of the problem.”

Paul Rafelson, a Florida attorney who focuses on e-commerce issues disputes Amazon’s contention that it’s powerless to prevent price gouging on its site.

“This is nothing that Amazon couldn’t police,” Rafelson says. “They have categories, they know ‘masks,’ they could have put a categorical limit on price increases above 10% or above 20% and just canceled every listing above that.”

Stacy Mitchell, the co-director of the Institute for Local Self-Reliance non-profit and a critic of Amazon’s market power, says Amazon already analyzes prices to calculate which sellers to suggest to buyers. “There’s a set of factors that determine where sellers show up and you could write into those algorithms parameters around inflated prices. You could remove that seller’s listing from showing up anywhere, or at least not make it the default seller. There is a way to do that.”

Amazon claims it has “dynamic, automated systems in place that locate and remove unfairly priced items.” It’s not clear why those systems didn’t function here. Aune sold his masks for more than a month, for instance, before Amazon took any apparent action. Amazon wouldn’t comment on the record.

Beyond the sellers whom Amazon has reported to law enforcement, it says it has suspended more than 6,000 sellers’ accounts for violating pricing rules around the pandemic.

Chris McCabe, a consultant whose company, ecommerceChris, helps Amazon sellers reinstate suspended accounts, suggests Amazon’s systems for detecting price gouging after the fact are misbehaving too. “I’m working with sellers and getting them reinstated because their prices weren’t gouging at all, but Amazon is saying that they are. There’s tons of false positives. Amazon’s basically carpet bombing.”

Amazon’s seemingly spotty ability to detect certain rule violations yet profit from others is akin to how Google and Facebook “banned” ads for over-priced face masks but their automated ad-selling algorithms kept selling them.

Amazon is “profiting from these prices. They know what’s going on,” Rafelson said. “They’re saying, we have this scapegoat, called the seller, we’ll just put the blame on them and we’ll still make the money.”

The price of some products sold by Amazon itself appear to have skyrocketed in early March, like these sanitizing wipes, which went from about $10 to about $30, according to data from price-tracking site CamelCamelCamel cited in a class-action lawsuit brought by law firm Hagens Berman. That was probably an accident, speculates Mitchell. “I don’t know if people sat around at Amazon headquarters and said, ‘here’s our opportunity!’ ” But a similar sort of accident has led to some third-party sellers being “suspended” by Amazon. McCabe says many outside sellers used automatic-repricing software inexpertly. “You can’t just wind it up and let it go, if your prices just keep going up and up then bad news happens,” that is, an investigation for suspected price-gouging by Amazon and, perhaps, being kicked off the platform entirely.

Amazon said in a blog post it employs “more than 70 team members focused on identifying and investigating unfairly priced products.” Amazon didn’t respond to questions about what those team members do and whether they focus solely on suspected price-gouging or, for instance, enforcing Amazon’s policies about third-party sellers charging more on Amazon than elsewhere.

Amazon’s public-relations strategy for its price-gouging problem is to paint the marketplace as chaotic, Mitchell says.

“They act as though the chaos on the marketplace is something that they’re trying to control,” she says. “Amazon consistently presents itself as trying to police that but that the scale is just so vast that it can’t quite keep up with it. That’s it’s line: ‘We’re cooperating with authorities. We’re trying to stamp this out. It’s hard to do and we can’t quite get it all.”

In truth, Amazon enforces some of its rules aggressively, Mitchell says. “If a seller violates a rule that matters to Amazon, they hear about it within a matter of hours and the retribution is swift and fatal in many cases. Amazon will just suspend your account and your business is over,” she says.

When Amazon pleads helplessness, “I don’t buy it,” she says with a laugh.

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