California lawsuit claims Amazon's anticompetitive practices drove up prices, reduced quality

California has filed a lawsuit against Amazon, alleging the company stifled competition and caused prices to increase across the state.

The lawsuit, announced by Attorney General Rob Bonta's office Wednesday, alleges that the online retail giant required third-party sellers to offer their lowest prices on Amazon, thwarting the ability of other online retailers to compete, helping the site maintain its dominance, and harming sellers and consumers through inflated fees and higher prices.

"For years, California consumers have paid more for their online purchases because of Amazon's anticompetitive contracting practices," Bonta said in a statement. "Amazon coerces merchants into agreements that keep prices artificially high, knowing full well that they can't afford to say no. With other e-commerce platforms unable to compete on prices, consumers turn to Amazon as a one-stop shop for all their purchases."

According to the lawsuit, merchants signing up with Amazon must agree not to offer lower prices on competing sites like Walmart, Target, eBay, and even their own company websites, and to accept drastic penalties like the loss of "Buy Box" on Amazon or to "compensate" Amazon if other online stores do lower their prices. Merchants that do not comply face sanctions, like less prominent listings up to suspension or termination of their ability to sell on Amazon, Bonta's office said. What has resulted is Amazon can and has raised its prices and reduced the quality of its offerings, and raised its seller fees, the lawsuit said.

Sellers say they pay less in fees on other sites and could sell their products for lower prices, but do not because "if we do, Amazon will disqualify [our] offers from the Buy Box," according to the lawsuit.

Amazon is the biggest online retailer in the U.S. with more than 160 million Prime members across the country and 25 million California alone. And because of its market share, more and more third-party sellers join Amazon every day, despite the fact that the cost of selling on the platform far exceeds the costs of other online stores, Bonta said.

"This perpetuates Amazon's market dominance, allowing the company to make increasingly untenable demands on its merchants and costing consumers more at checkout across California," Bonta said. "The reality is: Many of the products we buy online would be cheaper if market forces were left unconstrained."

In response to a request for comment, an Amazon spokesperson said:

"Similar to the D.C. Attorney General—whose complaint was dismissed by the courts—the California Attorney General has it exactly backwards. Sellers set their own prices for the products they offer in our store. Amazon takes pride in the fact that we offer low prices across the broadest selection, and like any store we reserve the right not to highlight offers to customers that are not priced competitively. The relief the AG seeks would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law. We hope the California court will reach the same conclusion as the D.C. court and dismiss this lawsuit promptly."

The lawsuit is seeking a court order to stop Amazon's anticompetitive behavior, along with penalties and fines.