Consumer-Centric Retail Pricing Misconceptions Could Harm Consumers
Yesterday’s lawsuit from the DC Attorney General against Amazon could result in harmful effects on consumers due to the mischaracterization of common pricing policies in the retail industry. Here are the facts:
— Pricing policies help consumers get the lowest price and are common among major retailers.
— Businesses of all sizes can employ a variety of sales channels to reach customers.
— Retailers compete for customers daily and directly through blended offline and online sales channels.
Pricing policies help consumers get the lowest price and are common among major retailers.
Pricing parity policies can enhance consumer welfare in two-sided markets, reminds Michele Bisceglia, Jorge Padilla, and Salvatore Piccolo, academic researchers. “By contrast, when the agency model is employed, as it happens in many two-sided markets, even when platforms have full bargaining power in their relationship with the seller, being able to raise the commissions’ level when a platform parity agreement is introduced, such a contractual provision might still be pro-competitive. In this case, consumers’ preferences are always aligned with the platforms’ but not with the seller’s. Namely, as long as platforms benefit from platform parity agreements consumers gain as well. Hence, from a practical point of view, the likelihood that these provisions benefit consumers is higher when their introduction is not opposed by platforms.”
Major retailers compete against each other through pricing policies to ensure consumers get the lowest price:
— Walmart maintains pricing parity rules that will unpublish listings that are highly uncompetitive or unfairly priced, according to Walmart Seller Help. “These rules improve the relationship with customers, increase trust and over time drive better conversions for sellers.”
— Target requires that third-party sellers “price products on the Target Plus marketplace at parity with their other sales channels,” reports Brian Roizen of Feedonomics. By requiring sellers to price products at parity with other sales channels, Target will “remain valuable” for customers, according to Deliverr, an online sales fulfillment company.
— Similarly, Amazon maintains a fair pricing policy that deters “a price on a product or service that is significantly higher than recent prices offered on or off Amazon,” details Amazon Seller Central. “In our mission to be Earth’s most customer-centric company, Amazon strives to provide our customers with the largest selection at the lowest price, and with the fastest delivery as sellers play an important role.”
Businesses of all sizes can employ a variety of sales channels to reach customers.
Online marketplaces provide substantial economic benefits to small and mid-size businesses (SMBs), highlights the Connected Commerce Council.
— U.S.-based online marketplaces contributed approximately $145.1 billion of economic value to the U.S.-based SMBs in 2018.
— Massive networks of online marketplaces have helped SMBs reach more shoppers and increase brand awareness, which totaled $96 billion in economic value in 2018.
Sellers have numerous marketplaces to partner with when it comes to selling online, including Walmart, Wish, Poshmark, Mailchimp, and more.
— The number of sellers on Walmart’s online marketplace has doubled to more than 50,000 since July 2019.
— MailChimp has launched online stores for small and medium businesses to access more than 14 million users. All of these marketplaces make it incredibly easy to start a business and diversify sales channels.
A survey of 350 small businesses found small businesses see revenue growth from selling on the Amazon platform but don’t rely on Amazon alone for their online sales, as reported by Axios. In fact, the survey found that 81% of the firms selling on Amazon use more than one digital sales channel, and sellers make more than half (54%) of their revenue from offline sales.
Retailers compete for customers daily and directly through blended offline and online sales channels.
Treating online retail as its own market when retailers compete for customers across online and offline sales channels doesn’t make sense, explains University of Pennsylvania law professor Jonathan Klick. “[R]elegating Amazon’s market to e-commerce rather than retail more generally might be a little like treating Sonic as controlling the market for hamburgers delivered to your car while you sit in a parking lot stall because McDonald’s won’t do that. That is, there is little a priori reason to carve out something known as e-commerce from retail more generally. In fact, data from a 2018 survey suggest that most consumers still prefer shopping offline.”
Customers continue to enjoy the benefits of both online and offline sales channels, finds a 2021 Verint report. In 2020, 43% of customers started the purchase digitally and 46% started in a store.
As the retail sector becomes increasingly multichannel, regulators must adopt a careful antitrust approach that “can balance long and short-term incentives to innovate and compete,” reminds Andrea Asoni, Principal of Charles River Associates. “The importance of innovation, the dynamic nature of the tech sector, the blurring of the lines between online and ‘brick-and-mortar’ businesses have made antitrust analysis more complex and added additional uncertainty, requiring a careful approach by antitrust practitioners, regulators, and legislators that can balance the long-term and short-term incentives to innovate and compete.”