How Amazon is ripping you off

They’re accused of using a secret algorithm, codenamed “Project Nessie,” to charge customers an estimated extra $1 billion dollars.

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Shopping on Amazon? Stop! Watch this first.

Amazon is the world’s biggest online retailer. This one single juggernaut of a company is responsible for nearly 40% of all online sales in America. In an FTC lawsuit, they’re accused of using their mammoth size, and consumers’ dependence on them, to artificially jack up prices as high as possible, while prohibiting sellers on Amazon from charging lower prices anywhere else.

They’re accused of using a secret algorithm, code-named “Project Nessie,” to charge customers an estimated extra $1 billion dollars.

If this isn’t an abuse of power that hurts consumers, what is? So much for all of those “prime” deals you thought you were getting.

Project Nessie isn’t the only trick Amazon has been accused of using to exert its hulking dominance over the online retail industry — leading to higher prices for you.

Much of the FTC’s antitrust lawsuit centers around the treatment of independent merchants who sell items on Amazon’s online superstore — accounting for 60 percent of Amazon’s sales.

Amazon allegedly uses strong-arm tactics that force these sellers to keep their prices higher than they need to be. Like barring them from selling products for significantly less at other stores — or else risk being hidden in Amazon’s search results or having their sales stopped entirely.

And Amazon is accused of engaging in pay-to-play schemes and charging merchants excessive fees that end up costing you even more.

Independent sellers are effectively forced to pay Amazon to advertise their products prominently in search results. If they don’t fork over cash, then their products get buried underneath products of companies who do. This hurts sellers but also harms shoppers who have to parse through less relevant products that may be more expensive or lower quality.

And to be eligible for the coveted “Prime” badge on their items — which is considered crucial for competing on the platform — independent sellers are pushed into paying Amazon for additional services like warehousing and shipping, even if they could get those services cheaper elsewhere. If sellers forgo trying to qualify for Prime, their goods apparently become harder for customers to find.

When all of these extra fees are added up, Amazon takes around a 50 percent cut of each sale made by a third party. It’s projected that Amazon will earn around $125 billion from collecting fees in the U.S. in 2023, most of which get passed on to you.

By charging all of these extra fees and stifling independent companies from selling their products for less elsewhere, Amazon is using its dominance to essentially set prices for all consumers across the internet.

And when you combine Amazon’s control of eCommerce with all of the other industries it has entered by gobbling up companies — such as Whole Foods, One Medical, and MGM — you’re left with a behemoth that simply has too much power.

This is all part of a much larger problem of growing corporate dominance in America. In over 75% of U.S. industries, fewer companies now control more of their markets than they did twenty years ago.

The lack of competition and consumer choice has resulted in all of us paying more for goods because corporations like Amazon can raise their prices with impunity. By one estimate, corporate concentration has cost the typical American household $5,000 a year more than they would have spent if markets were truly competitive.

This power isn’t just being used to siphon more money from you. A giant corporation has the power to bust unions, keep workers’ wages low, and funnel money into our political system.

It’s a vicious cycle, making giant corporations more and more powerful.

But under the Biden administration, the government is making a strong effort to revive antitrust law and use its power to reign in big corporations that have grown too powerful.

We must stop the monopolization of America. This FTC lawsuit against Amazon is a great start.

Read it on Robert Reich’s blog.

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Robert B. Reich is Chancellor's Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies. He served as Secretary of Labor in the Clinton administration, for which Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century. He has written fourteen books, including the best sellers "Aftershock", "The Work of Nations," and"Beyond Outrage," and, his most recent, "Saving Capitalism." He is also a founding editor of the American Prospect magazine, chairman of Common Cause, a member of the American Academy of Arts and Sciences, co-founder of the nonprofit Inequality Media and co-creator of the award-winning documentary, Inequality for All.

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