Consumer Watchdog Asks California Attorney General to Investigate Amazon Pricing Practices After Study Reveals Consumers Are Misled by "Discounts" that Don't Exist

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Mar 20, 2017, 14:26 ET

SANTA MONICA, Calif., March 20, 2017 /PRNewswire-USNewswire/ -- Consumer Watchdog today petitioned the California Attorney General to investigate Amazon, the gargantuan online retailer, for misleading consumers by often leading them to believe they are getting deals with discounted prices, when they are not. The charges are based on an extensive research analysis of Amazon's website and a comparison with prices easily available elsewhere.

"Amazon CEO Jeff Bezos is building the company's business on lies and unfairly ripping consumers off," said John M. Simpson, Consumer Watchdog's Privacy Project director.

In a petition to California Attorney General Xavier Becerra, Simpson wrote:

"Amazon and its executives are cynically flouting the law to increase sales and profits. A company cannot claim it's discounting something from a certain price when virtually nobody charges that amount. It's false advertising violating the California Business and Professional Code, as well as an unfair and deceptive practice violating the Federal Trade Commission Act. We call upon you to take immediate action to hold Amazon and its CEO Jeff Bezos accountable for this outrageous abuse."

Read a copy of Consumer Watchdog's petition here: http://www.consumerwatchdog.org/resources/ltrbecerr032017.pdf

In its petition to Becerra, the nonpartisan nonprofit public interest group charged Amazon violated Article 1, Sec. 17501 of the California Business and Professional Code. A copy of the petition to the Attorney General was also sent to the Federal Trade Commission.

The scam works like this, Consumer Watchdog said: Many items Amazon is selling give the selling price as well as a price with a line through it, a reference price, sometimes described as a "list" price or "was" price. This reference price creates the impression that the consumer is getting a deal because the price paid is substantially lower the one with the line through it. The catch is that the product is actually widely available from many other outlets at prices much lower than the crossed-out reference price. The "straw man" price was much higher than the price actually charged in the marketplace, and in many cases, it was a completely fictitious price, charged by no one.

In 2014, a California Court fined Amazon competitor Overstock.com $6.8 million for misleading consumers with phony reference prices like those Amazon uses. In January 2017, Canadian regulators fined Amazon $1 million CAD for failing to verify the accuracy of its reference prices.

Amazon's reference prices had once been posted for virtually every product offered for sale on the Amazon website. Though not as prevalent as once was the case, research shows that the misleading practice continues.

A detailed study of Amazon's website conducted by a data researcher from Feb. 3 – Feb. 6 of more than 4,000 products found Amazon published reference prices with a line through them on more than a quarter of its listings, and that the majority of these crossed-out prices exceeded—sometimes by large margins—any plausible definition of the "prevailing market price."

In other words, the reference prices were an entirely bogus notional price that created the false impression that customers were getting a deal when they were not. When correcting the inflated list prices, the fictitious discounts often vanished, the study found.

Read the full research report documenting Amazon's misleading practices here: http://www.consumerwatchdog.org/resources/atp_pricing_2.0.pdf

The reference prices that Amazon displayed were higher than of all its competitors' prices in 40 percent of cases, or 46 percent of cases where Amazon Marketplace vendors were excluded from the sample of competitors. Amazon displayed an entirely notional reference price—charged by none of its competitors—close to half the time it sold a product itself, the study found.

Here is a summary of the study's findings:

Amazon includes reference (crossed-out) prices on more than a quarter of its stock
A majority Amazon's crossed-out prices are greater than the prevailing market price, regardless of how the prevailing price is defined (between half and three-quarters, depending on measure used)
About 40 percent of Amazon's crossed-out prices are greater than the highest price charged by any known competitor
On average, Amazon's reference prices overstate the median market prices by $22, or about 20 percent
Amazon Marketplace vendors also post reference prices in excess of the prevailing market price, but they do so less frequently and to a lesser degree than Amazon itself
Amazon appears to be in breach of its own List Price policy, and its practices appear to violate federal regulations governing deceptive pricing and California law.

Using web browser automation, researchers checked price comparison website Nextag.com for 25 common household products sold on Amazon, and captured the first 20 pages of results. The researchers' automated browser then visited the Nextag page for each of the resulting 4,086 products and captured the list and sale prices advertised by each retailer. Where Nextag indicated that Amazon advertised a reference (crossed-out) price, the automated browser clicked through to Amazon to verify that Amazon did, in fact, have the reference price on its product page.

The analysis of this data revealed that, while crossed-out reference prices are no longer ubiquitous on Amazon.com, they still appear on a significant proportion of the company's products. Research verified the use of these misleading prices on more than 28 percent of products sold by Amazon in the sample, and nearly 23 percent of products sold by Amazon Marketplace in the sample.

Those crossed-out reference prices were deceptive: More than half these prices on Amazon.com exceeded the prevailing price charged by the retailers' competitors.

"In the face of regulatory pressure, such as the recent fine in Canada, Amazon may have curtailed its abuses,' said Simpson, "but it looks like Bezos and his company are again pushing the envelope to see what they can get away with."

Read a copy of the Amazon study here http://www.consumerwatchdog.org/resources/atp_pricing_2.0.pdf

Read an explanation of the study's methodology here: http://www.consumerwatchdog.org/resources/replicating_browser_process_2.0-1.pdf

Visit our website at www.consumerwatchdog.org

SOURCE Consumer Watchdog