Thursday, October 1, 2020

Amazon and Price Gouging During the COVID-19 Pandemic

A recent analysis by the national non-profit organization Public Citizen looks at how one of America's largest retailers benefitted from the COVID-19 pandemic.  This is of particular pertinence given that bricks and mortar stores throughout the United States were largely shuttered as a result of the pandemic and stay-at-home orders were issued by state level governments, leaving American consumers with little choice but to shop online for goods that they needed during the pandemic.  As well, the fact that there could well be a second shutdown as COVID-19 tests show increasing numbers of cases makes this analysis all the more pertinent.


Public Citizen opens by noting that there was a significant hoarding of key products during the pandemic, particularly in personal protective equipment (PPE) which led to shortages and price gouging by retailers.  The authors of the report looked at 15 essential items that were available on Amazon, by far the largest online retailer in the world.  The study looks at what happened to prices of these essential items which are sold directly by Amazon and by its third-party sellers through its Amazon Marketplace.

 

As background, on February 29, 2020, Washington's governor Jay Inslee was the first U.S. governor to declare a state of emergency.  By March 18, 2020, nearly every state had declared a temporary state of emergency, most of which have been renewed and are still in effect today.  In certain states, governors' emergency declarations included prohibitions on price gouging on essential products.  As states began to issue stay-at-home orders, residents in those states were forced to turn to Amazon for products that they could not acquire at their weekly allowed trip to their local stores because of pandemic-induced shortages.  One of the greatest beneficiaries of forced online shopping was, of course, Amazon.  As you can see on this press release announcing the second quarter 2020 results from Amazon, increased sales has led directly to a massive increase in net income:

 


For the third quarter of 2020, Amazon is projecting net sales of between $87 billion and $93 billion, reflecting earnings growth of between 24 percent and 33 percent on a year-over-year basis.  The latest Amazon results also show that earnings from its Marketplace business increased by 53 percent to $18.2 billion for the second quarter of 2020 alone.  This profit comes from the cut that Amazon keeps in fees charged to its third-party sellers ecosystem.  

 

As I noted above, the Public Citizen report looks at price gouging by both third-party/Amazon Marketplace sellers as well as those sold directly by Amazon.  Let's start by looking at some examples of price gouging by third-party sellers on items that were necessities for consumers:

 


Here are some examples of price gouging on products sold directly by Amazon, noting that many of these items are considered to be essential components of PPE while other food products were in higher demand as households turned to home cooked meals because they were ordered to shelter-in-place:


 

Let's look at what Amazon had to say about the practice of price gouging on its blog back in March 2020:



Amazon's four-part methodology for preventing "bad actors" from gouging its customer base was obviously a failure, nonetheless, the company claims that it is "...humbled by the trust our customers have placed in use during this difficult time."

 

That said, on the upside, this is how Amazon stock has performed since March 2020, thanks in large part to the significant increase in sales volumes since the government-imposed lockdowns took place and its impact on profitability:



According to Inequality.org, this has resulted in Jeff Bezos personal wealth rising from $133 billion on March 18, 2020 to $206.4 billion on September 4, 2020, an increase of 55.2 percent.

 

The United States currently has no federal price gouging law, preferring to leave pricing in the hands of what passes as a "free market".  Given that Americans can shop online from any state, state laws against price gouging are toothless.  According to Public Citizen, there are steps that Washington could take to prevent a repetition of the shameful behaviour by Amazon (and other retailers) during this time when American consumers are highly vulnerable:

 

1.) Provide a clear and unambiguous definition of price gouging such as a 10% increase in prices during an emergency;

 

2.) Include a very broad list of products, goods, and services that would be covered;

 

3.) Establish significant civil penalties enforceable by the Federal Trade Commission and state attorneys general;

 

4.) Apply wherever price gouging occurs in the supply chain; and

 

5.) Be applicable during the current COVID-19 pandemic as well as any disaster or health emergency now and in the future. 


With the lockdowns being rescinded in some jurisdictions, the best thing that consumers can do is to "humble" Amazon by doing their shopping at locally owned businesses rather than further enriching America's wealthiest oligarch.


1 comment:

  1. Thank you for a much needed and timely article. Amazon is not our friend but has launched a huge new ad campaign to convince us otherwise. Amazon exploits its workers and its vendors. It also negotiates special deals with the government and even electric companies that shift costs to its other customers.

    Utilizing the "power of the web" Amazon continues to slip and sneak its messages into places uninvited. These all have been a big factor in thousands of retailers being forced to close and in the destruction of small businesses across America. The article below delves into whether there is anyone or anything that Amazon doesn't exploit?

    https://brucewilds.blogspot.com/2019/07/amazon-quietly-exploits-everyone-and.html

    ReplyDelete