Government is investigating claims that Amazon is deceiving customers, ahead of Whole Foods deal

Amazon CEO Jeff Bezos

As Amazon prepares to lock down its mega-merger with Whole Foods, one of its most controversial sales practices may be coming back to haunt it.

The Federal Trade Commission is investigating claims that the online shopping giant misleads customers with the price comparisons it lists on its products, Reuters first reported.

The unofficial probe concerns the listed price on items, that retailers use to demonstrate how much their customers are supposedly saving.

The group behind the complaint, Consumer Watchdog, reviewed around 1,000 Amazon products and found these reference prices used on nearly half. In around 60 percent of those cases, the group alleges, Amazon had never sold the same item at the "before sale" list price or higher in the last 90 days, suggesting that the promotions advertised hadn’t actually reduced prices as Amazon claimed.

"Amazon must not be allowed to expand these deceptive practices to a whole new pool of unsuspecting customers," Consumer Watchdog’s letter to the FTC reads.

"We call on you to block the proposed purchase of Whole Foods until Amazon formally consents to stop its deceptive, unfair and anticompetitive pricing."

A source familiar with the situation says the FTC’s actions are related to its review of Amazon’s $13.7 billion acquisition of Whole Foods. The agency’s purview includes both deceptive marketing and the approval of mergers and other deals in accordance with antitrust law.

Its rules regarding the former warn businesses not to use "fictitious" or "inflated" reference prices to create the illusion of a bargain.

"In such a case, the ‘reduced’ price is, in reality, probably just the seller’s regular price," the guidelines say.

The agency began collecting more information shortly after the letter was filed in early July, the source said. Officials wanted to move quickly to meet the legal deadline for a possible next step in an antitrust investigation, in which case the government would request data from Amazon.

An Amazon spokesperson called Consumer Watchdog’s analysis "deeply flawed" and said it was "based on incomplete data and improper assumptions."

"The conclusions the Consumer Watchdog group reached are flat out wrong," the spokesperson said in a statement. "We validate the reference prices provided by manufacturers, vendors and sellers against actual prices recently found across Amazon and other retailers."

The news comes amid chatter around whether the Whole Foods deal is a bridge too far in Amazon’s ambitious accumulation of consumer market power. An influential hedge fund manager (and noted Amazon short-seller) claimed last week that Capitol Hill lawmakers had begun to consider a potential case against Amazon on antitrust grounds. A member of the House’s market competition committee has also called for a hearing on the matter.

Most leading antitrust experts have agreed, however, that there’s little basis for an argument that the merger violates competition law, at least in the narrow, consumer-centric way it’s currently practiced in the country.

But the list prices accusation, which involves actual consumer harm, could change the equation should the FTC find it has merit.

This isn’t the first time the practice has landed Amazon in hot water. The company paid a $1 million fine to Canadian regulators in January after they found that the company’s list prices didn’t match those of the market at large.

The New York Times reported last year that Amazon had begun to phase out such comparison points altogether due to the dozens of consumer lawsuits they drew.

Comments are closed.