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Comment by clintonc | Hacker News Reader

I am Amazon, and you sell cat mugs. I offer you a "sold by Amazon" contract, which you accept.

I start manufacturing my own cat mugs, and sell them at a price that undercuts yours. You have no way to change your price, so your mugs no longer compete effectively with Amazon cat mugs. Most of your sales go away, because Amazon is so dominant as an online marketplace (NOT as a cat mug manufacturer).

This is anti-competitive because Amazon used its dominance as an online retailer to become a dominant cat mug manufacturer.

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That doesn't make any sense to me.

If the argument is that Amazon is a dominant retailer and sells its own brand goods to dominate particular segments then exactly the same applies to, say, Walmart.

How does the "sold by Amazon" contract relate to that?

Because it can create any product that is selling well, and at any price point, because it _also_ has the right to subsequently raise _your_ price.

You're selling dongles for $20. You sign a contract with Amazon. It realizes that dongles are lucrative, and starts getting them manufactured. Hey, it can sell dongles for $20, too. But then they're competing with you, because you both sell $20 dongles. So, solution, they raise the price of your dongles to $25, so yours become instantly less competitive.

Substitute Walmart for Amazon. Substitute corn-flakes for dongles. Substitute Kelloggs for "me".

That is the situation right now at Walmart. Kellogg's Corn Flakes are $3.28 for an 18oz pack. Great Value (Walmart own-brand) Corn Flakes are $1.43 for the same size package.

You ignored the key detail: Who set the price for the Kellog’s corn-flakes?

Walmart? I mean they're on Walmart's shelves. I'm pretty sure Walmart sets the price for everything that's on its shelves.

I mean, Walmart could just choose not to sell Kellogg's Corn Flakes at all. If that was more profitable, I'm pretty sure they'd do that.

They sell their own brand at a lower price point for price-sensitive customers, they sell the "premium" brand at a higher price for customers who buy on the basis of the name etc.

Yeah. Key difference. If the kellogs flakes don't sell at a higher price then Wallmart loses out. It's on Wallmarts balance sheet. If Amazon doesn't sell the brand they have a contract with and now compete with they don't lose out. It's not on their balance sheet. They don't buy that inventory, spend on that shelfspace, etc

Additionally I believe Amazon was pricefixing in cooperation with other retailers.

I think the big difference here is who takes on inventory risk. If a traditional retailer wants to buy something wholesale and then not sell it because their price is too high, then well, they bought the product and it's their problem to deal with.

In the Sold By Amazon program, it sounds like there wasn't a volume minimum or an actual purchase-for-resale going on. The inventory isn't on Amazon's balance sheet at all, if it doesn't sell then that's someone else's problem financially.

Walmart is given a wholesale price by Kellogg’s. Walmart’s choice is to set their markup over that wholesale price. On average, the wholesale price by Kellogg’s cereal would be $1.64 and the wholesale price for the GV would be $0.715.

It’s complicated for Walmart, because there is documented evidence of them telling suppliers what wholesale price they will _accept_, but that does not change that it is ultimately Kellogg’s wholesale price that is being met by Walmart.

Can't the seller simply decide not to participate in the program and choose it's own pricing? It can still be sold via Prime & FBA.

Just to be clear, the difference from wholesaling is that in your example, Amazon has the right to set your prices, but it doesn't buy anything from you?

If Amazon actually buys your cat mugs, and then prices them higher than its own cat mugs, such that customers buy Amazon mugs and don't buy your mugs, you still sold all your mugs and there would seem to be no problem.

You sold that batch of mugs, but that's it.

Nope. You still have the right to price your own future batches of mugs.

But the vendor agrees to let Amazon set their prices in return for, essentially, being an Amazon-sponsored product. The vendor doesn't have to participate, in which case it can still set its own prices.

I can see the argument that it's price fixing if Amazon & the 3rd party both agree to sell at the same price, but even then I'm not sure it's anti-competitive or anti-trust when some other 3rd party can come in, see the higher prices, and decide to undercut them. Not unless Amazon get's all sellers of a product to agree, but the article doesn't directly allege that.

How is this different from Kroger getting to set the prices of both Lay’s and their store brand chips?

It would be the same, except

- Kroger isn't 50% of all grocery stores on earth

- Kroger paid money up front for your potato chips

- Kroger isn't charging you for storing your potato chips

In order

1) But most supermarkets do this in similar ways. Not quite the same as a single entity, but close enough (more like a cartel?) that I'm not sure I see much of a difference.

2) This is the major difference in my mind, but other vendors can still sell for less, so I'm not sure how much competition is stiffled.

3) Well, they actually are. It's called slotting fees. They can simply be for warehouse storage and a place in the store, or at higher levels can be paid to have products placed in specific locations, e.g., eye-level on shelves. This seems similar to signing up for the program in the OP to have your product highlighted as an Amazon-sponsored product.

I don't like many of Amazon's practices, but I'm not convinced this particular one rises to anti-trust.

It's also worth noting that with 1 you can find plenty of farmers and small producers do complain about the anti trust issuese of supermarkets in the same way.

>Kroger isn't charging you for storing your potato chips

Well, slotting fees seem pretty close to that:

https://qz.com/807723/inside-the-secret-backroom-deals-big-b...

Tangent, but Clemmy sounds too close to clammy for an ice cream brand (example cited in article of company that went out of business due to fact that shelf space was too expensive).

> Kroger paid money up front for your potato chips

I agree, the Kroger Purchase Order is currently in bulk infrequently (e.g. 100units once a week), but the Amazon Purchase Order is currently not-bulk frequently (e.g. 1 unit 100 times a week).

Meanwhile, "Kroger makes no representation regarding the maintenance of any specific retail price for Products purchased for resale."[0]. As I understand it, that means it can change the price at any time. If in week 2, Kroger prefers a lower price, it can tell the seller "Last week was $22, but now I'll only buy the potato chips for $20 and no more. Do you still want to keep selling to Kroger?".

I don't see how this is materially different from the case about Amazon. Because the reality is no merchant cares about 1 bulk order, they only care about continuous re-orders.

[0] https://www.thekrogerco.com/wp-content/uploads/2017/09/kro_s...

> - Kroger isn't charging you for storing your potato chips

That's not completely correct.

Kroger will charge you if you want an End Cap display of your chips, and Kroger will charge you if you want additional shelf space for your chips.

I believe it's more limited to things like Chips, Soda, Snacks, etc, but, it does happen in the grocery industry.

>Kroger paid money up front for your potato chips

Not always. Products can be sold as "pay per scan," where the manufacturer maintains ownership up until the moment the barcode is scanned at checkout. The retail store then instantly purchases the product for an agreed-upon price and turns around to sell it to the consumer.

Side note: Lays are actually a vendored product at Target. I don't know about Kroger.

This is how retail works, though. You buy from wholesalers at $X/unit. How you price it, and whether you undercut them with your own branded unit, are decisions for the retailer and has been for hundreds of years.

The wholesaler still gets the sales contract they signed.

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