Amazon price specifications: Mechanisms, effects and antitrust classification

In recent years, Amazon has introduced price targets for Marketplace sellers and gradually expanded them massively. The company dictates dynamic upper and lower limits to sellers, which are calculated automatically using algorithms. There is no transparency here and the price limits are subject to Evaluation by the Federal Cartel Office at Amazon's own discretion. The argument that the guidelines provide customers with a consistent shopping experience contrasts with the view of the authorities. The latter criticizes Amazon's pricing requirements and sees them as a massive encroachment on pricing freedom and a possible abuse of a dominant market position. We summarize Amazon's mechanisms, their impact on retailers and their classification under antitrust law.

Price control mechanisms in detail

Sophisticated statistical models and algorithms are used for pricing. Both current and historical offers on Amazon are analyzed, as well as prices from external competitors. Dynamic price limits are calculated in real time on the basis of this data. The further procedure is divided into three categories:

• Price error

Offers with serious deviations from the internal reference prices or obvious errors (e.g. cent amounts instead of euros) will be completely removed from the Marketplace.

• Prices too high

The price is above the dynamically calculated upper limit. Retailers are excluded from the Buy Box and receive lower rankings in the search results list. Your products are also excluded from Amazon advertising measures.

• Non-competitive prices

Although the price is not in the "error range", it is above a competitive level compared to the market situation. The sanctions are similar to those for "too high prices", but the offers can also be removed from highlighted purchasing fields.

Effects on retailers

• Visibility

Offers above the price limits are removed from the Buy Box or displayed less frequently in search results, which can significantly reduce sales figures.

• Margin pressure

Many retailers, especially small and medium-sized companies, have to artificially lower prices in order to comply with regulations. As a result, profit margins shrink or losses are incurred.

• Distortion of competition

Those who cannot financially afford to keep prices permanently low are forced out of competition and lose market share.

• Planning uncertainty

The constant adaptation of algorithms and lack of transparency make it difficult to calculate purchase and sales prices.

• Dependence

Retailers become dependent on Amazon's pricing logic, which limits their own pricing strategies.

Assessment by the Bundeskartellamt

In the fall of 2024, the German Federal Cartel Office commissioned a survey of 2,000 representative online retailers on Amazon's price controls. The current assessment, according to which it considers Amazon's price caps for third-party offers on the US company's online platform to be questionable under competition law, is also based on the results of this survey.

"Competition in online retail in Germany is largely determined by Amazon's rules for the retail platform. As Amazon competes directly with other marketplace retailers on its platform, influencing competitors' pricing, including in the form of price caps, is fundamentally questionable from a competition perspective. This applies in particular if the retailers concerned can no longer cover their own costs and the trading platform is used to hinder the rest of the online trade in violation of antitrust law," explained Andreas Mundt, head of the authority.

According to the German Cartel Office, Amazon accounts for around 60% of sales in the German online retail sector. The industry leader operates both its own retail business "Amazon Retail" and the online marketplace "Marketplace", where retailers can sell their goods directly to consumers.

"It also played a role in our preliminary assessment that the parameters of the price control mechanisms used are at Amazon's discretion and that the price limits for marketplace retailers are not transparent," the head of the Bundeskartellamt states.

How does Amazon react?

In an initial statement, the company emphasized that the implementation of the preliminary assessment would have negative consequences for consumers and trading partners. "If Amazon were prevented from helping customers find competitive offers, it would lead to a poor shopping experience as we would have to favor unfair or even abusive prices," the company said. Customers would then mistakenly believe they were getting good value for money when this was not the case.

Small and medium-sized companies that sell on Amazon "set their prices freely and independently", emphasized a spokesperson. However, this statement contradicts the non-transparent price limits set by Amazon, which retailers must adhere to if they want to remain visible on the marketplace.

Conclusion

Amazon's price targets pose a profound challenge for many retailers. On the one hand, the group creates supposedly more stable prices and ensures a uniform customer experience. On the other hand, the pressure on margins leads to crowding-out effects, increases retailers' dependency and triggers competition law investigations.

Sellers on Amazon Marketplace should not only keep an eye on price changes and notices in Seller Central, but also document them. It was such evidence, among other things, that led to the current measures taken by the German Federal Cartel Office following the major retailer survey. While the authority and the European Commission are investigating whether and how Amazon is abusing its market power, retailers should take a broader strategic approach. A combination of targeted cost optimization, diversification of sales channels and cooperation with consumer protection organizations can help to mitigate the risks and remain successful in the long term.