Amazon's Secret Tactics: How Its Market Power Raises Prices for Everyone
Amazon has become the biggest online retailer in the world. Consumers flock to the site because they expect low prices. But a deeper look into the company's internal methods reveals a different reality. Investigations by authorities in Germany and the United States suggest that Amazon may be abusing its market dominance. This practice hurts competition and ultimately causes prices to rise for consumers. We look at testimonies from former Amazon insiders, legal experts, and struggling manufacturers. Their stories reveal the high pressure tactics Amazon uses against sellers and how its desire for total market control impacts both small businesses and your wallet.
Investigating Amazon's Market Power
For years, Amazon has faced constant criticism over its business practices. Multiple governments and regulatory agencies are now taking action. Their main suspicion is that this digital giant abuses the power it holds over the online marketplace.
Legal Pressure Mounts
The Federal Competition Office in Bonn, Germany, has spent years looking into Amazon. They suspect the company is abusing its market power. This scrutiny is not limited to Europe. In the United States, Amazon has faced criticism for years. Since 2023, the company has faced a broad anti-monopoly lawsuit. This lawsuit accuses Amazon of breaking competition rules.
Experts warn that Amazon’s potentially illegal practices drive up costs. Internet merchants in Germany agree. They feel that Amazon's practices make prices more expensive for everyone online.
The Ex-Manager's Testimony
A key piece of evidence came from a former Amazon manager. She worked in high-level positions, handling negotiations with manufacturers. She revealed sophisticated mechanisms Amazon uses to press suppliers. She spoke anonymously, fearing legal consequences and retaliation from the company.
This former high-level negotiator confirms that many of the tools Amazon uses are questionable. In her view, these methods hurt customers because they raise product costs. She states that Amazon’s true interest is not offering customers the best price. Instead, Amazon focuses on taking business away from its competitors.
She was involved in creating negotiation techniques that were turned into tools for others to use. She now believes these tools are problematic because they force prices higher.
How Amazon's Practices Hurt Sellers
Amazon attracts customers with low prices. But sellers who rely on Amazon to reach millions of buyers must constantly fight increasing costs and strict rules. The company implements specific measures to punish those who do not follow its pricing demands.
Case Study: Gusti Leda
Christian Peach is a leading leather goods manufacturer in Germany. Sixteen years ago, he founded his company, Gusti Leda. Digital commerce is critical to his success. Initially, about 90% of his sales came from Amazon.
However, the competition on Amazon has become incredibly fierce. Peach noticed a drastic reduction in sales. For instance, sales for one popular leather bag dropped from about 400 units a month to around 80 units a month in one year.
He also found that when people searched for "Gusti Leda," many results featured products from other manufacturers. These rival brands were advertising using his trade name.
To make sure customers actually found his products, Peach had to pay for ads on Amazon. This led to a difficult cycle:
- Advertising costs increase.
- Sales decrease overall.
- Peach was forced to raise product prices to cover the high marketing and fee costs.
The costs imposed by Amazon accounted for a significant portion of his expenses. At Gusti Leda, production and personnel costs were only a small portion of the overall budget. 56% of Gusti Leda’s expenses came from Amazon. This included commissions, long-term storage fees, returns fees, and advertising costs.
Rising Fees and Hidden Costs
Sellers constantly deal with new types of costs imposed by Amazon. These include long-term storage fees and 360-degree service fees.
Manufacturers and sellers must include these costs in their product prices. This often makes it impossible to offer the same item cheaper on other platforms. If they try to sell cheaper elsewhere, they risk being penalized.
Peach believes this is unfair to customers. He says he could offer a product much cheaper, but the constant fee increases force the final price up. Customers cannot buy the product at the price he could theoretically have sold it for.
The Buy Box Weapon
The "Buy Box" is the most important spot on any Amazon product page. When a customer clicks "Add to Cart," they buy from the seller who holds the Buy Box. If a seller loses the Buy Box, their sales quickly crash.
Amazon uses the Buy Box as a powerful tool. If Gusti Leda offers a discount on another platform, like Otto, and the price is lower than on Amazon, Amazon takes away the Buy Box.
The former Amazon executive confirmed that the Buy Box is the perfect tool to pressure merchants. It prevents them from offering lower prices on rival platforms. Amazon claims this tool ensures the best price for the customer. However, the former executive disagrees. She points out that if Amazon wanted the best price for the customer, they would not remove the Buy Box when the product is cheaper somewhere else.
This practice stops price competition. The platform attracts customers expecting low prices, but in reality, sellers have to keep their prices high across the entire internet to avoid being penalized by Amazon.
Forced Price Matching
Amazon’s dominance creates a cycle where everything becomes more expensive. The ex-manager explains that logistics and advertising costs increase because Amazon decides they should. This builds a monopolistic spiral.
Amazon uses an algorithm to constantly monitor prices on competing platforms. If the algorithm finds an item cheaper elsewhere, Amazon matches the price. Employees call this "price matching."
However, if Amazon loses money on a price match, they demand compensation from the manufacturer. Amazon pressures large manufacturers, demanding they cover the difference if Amazon price-matched a competitor and lost money. Amazon demands to always be the cheapest, and the manufacturer pays the cost of that commitment.
The Dangerous MRA Catalog of Sanctions
Amazon applies sophisticated pressure to manufacturers who sell directly to them (vendors). This pressure is documented in internal instructions.
What is the MRA?
The former Amazon employee recognized internal documents outlining instructions the company uses against manufacturers. This catalog of measures is known internally as the MRA. It details several stages of escalation, showing exactly when and how a manufacturer is punished.
These instructions are powerful and focused on causing financial pain until the manufacturer agrees to Amazon's demands. It is described as applying "torture in small doses until the manufacturer breaks."
How Sanctions Cause Damage
The MRA allows Amazon managers to restrict key sales opportunities and hurt a manufacturer’s sales significantly.
Examples of sanctions detailed in the MRA include:
- Recommending Alternative Products: Amazon may suggest competitor products to customers looking for the sanctioned manufacturer's goods.
- Interrupting Sales: Amazon can temporarily stop the sale of a manufacturer’s star products.
- Restricting Advertising: Amazon can restrict or disable a manufacturer’s marketing options. This allows competitors to use the sanctioned company’s keywords for their own promotion.
The goal is to hurt the manufacturer's sales week after week until they comply with Amazon’s margin expectations. Few companies can resist this level of pressure.
Vendor Program Risks: David Halali's Story
David Halali, an entrepreneur from Germany, developed non-slip silicone children's plates. He manufactured them in Germany and they sold very well on Amazon. Amazon eventually contacted him and convinced him to become a "vendor," meaning he would supply products directly to Amazon for resale.
Halali was excited, expecting greater sales volume and less worry about selling directly to customers. However, the contracts were extremely tough. Amazon demanded very high profit margins. Halali soon realized the vendor program was not profitable for his business.
The situation became worse when Chinese manufacturers copied his product and sold similar plates cheaply on the platform. Despite high sales volume, Halali made barely any profit. His promising partnership with Amazon ended quickly. Today, he still has inventory and debt. He sells maybe 10 plates a month on his own website, while sales on Amazon have stopped completely.
Other major brands that sell directly to Amazon have confirmed experiencing these sanctions. They report similar pressures:
- Competitor Promotion: When searching for their brand name, competitor results appear prominently.
- Margin Compensation: Amazon sets a target profit margin. If the company fails to reach it, the manufacturer must pay Amazon the difference. If they refuse, they risk losing the Buy Box.
Why Consumers Pay More in the End
Amazon’s methods ensure it maintains total control over pricing. This control means that while Amazon may occasionally offer a cheaper price by demanding compensation from manufacturers, the overall cost structure increases across the entire online market.
Expert Opinions on Price Control
Competition law experts stress that consumers should understand that Amazon does not necessarily have the cheapest deals. They are dealing with a system designed to make prices consistently higher, forcing other sales channels to raise their prices as well. Merchants feel they have no choice but to adjust their prices upward to keep up.
Fiona Scott Morton, an expert from Yale University, explained the pricing issue clearly: If a platform prevents a seller from offering lower prices elsewhere, the platform with the highest fees sets the highest price.
She warns that sellers cannot move to a platform with lower fees to offer a better price. This results in prices rising across the entire market, hurting consumers.
The Advertising Revenue Trap
Margarida Silva, a data analyst researching the power of large tech companies, confirms that Amazon has steadily increased its fees and commissions. Income from advertising has also skyrocketed in recent years.
Advertising is an appealing revenue source for Amazon. Since Amazon already owns the platform and the data structure, advertising requires low investment and risk.
Silva’s studies show a turning point around 2016 to 2017 when Amazon significantly increased its advertising revenue share. In just a few years, advertising revenue jumped from 0.3 billion to 5.4 billion euros.
Silva’s interviews with sellers show they often regret joining the platform. They report feeling trapped in a "hamster wheel" of sales and facing constant pressure to spend more on advertising. They conclude that Amazon is not a friend to small businesses.
Fighting Back: Competition Law and the DMA
In the European Union, the danger of declining competition was recognized years ago. This led to the Digital Markets Act (DMA), which took effect in March 2024. The DMA aims to protect consumers from the power of large tech companies.
European authorities have already started investigations against Amazon under this new law. They suspect Amazon is not following its obligations and gives preference to its own sales offers over those of competitors. The Buy Box practice is central to these investigations.
Experts believe Europe must make a clear regulatory decision about Amazon soon. The concentration of transactions on one platform makes prices less flexible than they would be on smaller, competing platforms. The DMA aims to fix this lack of open competition.
Businesses That Refuse Amazon
Some companies, recognizing the risks, have decided not to sell their products on Amazon, even if it means sacrificing quick sales.
The Ortlip Strategy
Ortlip, a German company specializing in waterproof bicycle bags, does not sell directly on Amazon. Their products are only available through authorized third-party distributors and specialized retailers.
Martin Eslinger, the director, believes that while Amazon could generate quick revenue, it would damage the brand in the medium and long term. Ortlip is a premium brand and does not want to enter the "price spiral" created by Amazon. They want to control the customer experience.
Despite Ortlip’s refusal to partner with Amazon, the digital giant tried to use the brand name for Google advertisements. When customers searched for Ortlip bike bags, they were directed to Amazon, where they saw competitor products. Ortlip won a lawsuit against Amazon for misuse of its brand name in 2019.
However, searching within Amazon still shows many results for "Ortlip" even if the products listed are from competitors. Ortlip continues to fight this misuse to maintain control over its brand identity.
Gusti Leda Finds New Paths
Christian Peach of Gusti Leda managed to reduce his reliance on Amazon by focusing on traditional physical retail. He has opened 34 physical stores and plans to open more.
In his physical stores, he can offer lower prices because he does not have to deal with Amazon’s high fees. Peach found that the strategy works. He noted that one physical store can generate more profit than his entire brand sales channel on Amazon. His physical stores may have a lower volume of business, but the profit left over is much greater.
Peach now takes a critical stance, believing both sellers and consumers pay too high a price for being part of the Amazon marketplace.
Conclusion: Ensuring Fair Competition
Amazon has the power to dictate rules to its trading partners as it wishes. This is criticized as an aggressive and even "cruel" set of rules that allow Amazon to apply immense pressure on manufacturers and sellers.
The system described by internal sources and experts creates a damaging cycle. Manufacturers and merchants must demand increasingly high prices to meet Amazon's profit expectations. At the same time, the profits generated end up diverted to Amazon, shifting economic activity away from local economies.
The seriousness of these findings is clear. The former high-level Amazon employee who provided insider testimony had been scheduled to reveal crucial details to German competition authorities. However, she withdrew hours before the appointment. She feared severe retaliation if Amazon found out she had spoken openly, highlighting the extreme power Amazon holds over those who might expose its inner workings.
It is vital to ensure fair competition on platforms like Amazon. Authorities must take swift and decisive action to correct this imbalance and ensure that the cost of digital dominance is not unfairly carried by small businesses and consumers.
