Amazon crackdown on price gouging worsened shortages
When Americans couldn’t find hand sanitizer, toilet paper and disinfecting wipes on Amazon.com, many assumed the products had run out thanks to surging demand from homebound shoppers.
In some cases products were available, but merchants had pulled them to avoid getting caught up in Amazon’s price-gouging crackdown-even though they weren’t raising prices.
Amazon began issuing vague warnings about price policy violations in March that extended through April, threatening to kick merchants off the site. The automated warnings followed glaring headlines about greedy opportunists, like a merchant trying to sell a two-pack of hand sanitizer for $400.
But Amazon’s warnings didn’t specify prices the company deemed fair. That left merchants playing a guessing game as they tried to determine if they could sell the items and still make a profit after accounting for their own costs, shipping and Amazon’s commission, which typically runs about 15%.
Merchants had access to these products and knew Amazon shoppers wanted them, but they deliberately pulled them because the rules about selling them weren’t clear and the consequences for violations could be devastating.
In a heavily automated system with little contact between merchants and Amazon employees, it can take weeks or months to reinstate suspended accounts. As a result, merchants do whatever they can to avoid being exiled — even if it means forfeiting sales of popular products. All of this was happening when Amazon was prioritizing essential household items, such as cleaning supplies.
It’s unclear how many merchants yanked their products and how much doing so exacerbated shortages that were also fueled by supply-chain disruptions.
But consultants who help merchants avoid suspensions say they were inundated with calls from clients during the pricegouging crackdown.
One of them, Chris McCabe, said he heard from hundreds of merchants and advised dozens of them to stop selling products because the rules were unclear. “Amazon just did a giant sweep and they really scared a lot of people away from selling wipes and toilet paper,” he says.
Amazon, through a spokeswoman, said the company’s policies have always prohibited price gouging.
“Our objective is to protect customers from clearly egregious price increases,” she said. “If a seller believes we’ve made an error, we encourage them to reach out to us directly and we will investigate the matter.”
The COVID-19 outbreak roiled Amazon’s online marketplace, where millions of merchants sell hundreds of millions of products. Amazon differs from major retailers like
Walmart and Target that buy most of their inventory wholesale and then sell it in their stores at a markup.
The pandemic prompted governors around the country to declare states of emergency — which in many cases triggered price-gouging laws enacted to protect consumers from price spikes following disasters. But precisely what constitutes price gouging and which products are protected varies from state to state. It’s a difficult phenomenon for Amazon to manage since the marketplace can match buyers and sellers from different states.
While the company uses complex algorithms to monitor prices, whether or not a merchant is in violation depends on where the customer lives.
Some states set specific thresholds for price gouging, such as 10% above typical prices. Other states define it vaguely with words like “unconscionable.”
Amazon merchants offer the same prices nationally and don’t know where their customers live. All of this makes it difficult for Amazon to manage with clear rules, making merchants suspect the company got too aggressive in trying to prevent violations.