Germany Wants Amazon To Loosen Its Third-Party Seller Restrictions

German anti-trust officials are investigating the non-price-compete contract clauses at Amazon (NASDAQ:AMZN), which require third-party sellers to not sell anywhere else for less.

If the agency finds against Amazon—the Associated Press quoted the agency head as saying there was "considerable" evidence that Amazon is indeed breaching cartel rules—and if the ruling spurs other agencies in other countries (including the U.S.) to act, then this has the potential to be very disruptive to Amazon. Those third-party sellers are crucial to Amazon's seemingly infinite inventory, and the ability to offer the lowest price is critical to Amazon's strategy.

"Amazon's price parity clause, under which sellers are deprived of their freedom to sell a product offered through Amazon cheaper on another Internet sales channel, could violate the general ban on cartels," said Andreas Mundt, the head of Germany's federal antitrust office (the Bundeskartellamt), on February 20. "This applies in particular if the restriction of the sellers' freedom to determine prices also restricts competition between the different Internet marketplaces. Such a restraint of competition seems likely as, under normal circumstances, sellers have an interest in offering their products on several Internet marketplaces."

Mundt said what might seem to be a reasonable requirement for Amazon contracts could domino into unfair trade restrictions, ultimately controlling prices.

"In order to become active on an Internet marketplace, sellers must pay the operators of the marketplace (Amazon, eBay, Rakuten) various fees, e.g., a specific percentage of the sales prices they achieve. As the sellers cannot allow any favorable conditions to translate into a more favorable price payable by end consumers, it can be difficult for other Internet marketplaces that compete with Amazon, especially new platforms entering the market, to reach a large number of customers," Mundt said. "There is the threat of Amazon enforcing high seller fees which could result in a generally higher price level without producing sufficient benefits, to the detriment of consumers."

Mundt's agency is not, at this time, even threatening fines or other legal penalties. The worst-case scenario would simply be that Amazon would be required to redo all of its German contracts. "If the investigations were to confirm the suspicion, Amazon could be required to delete the price parity clause from its terms and conditions," Mundt said. From Amazon's perspective, it would most likely much prefer fines.