January 24 2017
Amazon forced to change its pricing practices
On January 11, the Competition Bureau (the “Bureau”) announced that, as part of an agreement to resolve the Bureau’s concerns with regard to Amazon’s price display practices, the retailing giant has modified its practices and has agreed to pay $1 million in penalty and $100,000 to cover the Bureau’s costs. A consent agreement to this effect has been filed with the Competition Tribunal.
Between May 27, 2014 and May 1, 2016, the Bureau investigated Amazon’s marketing practices, particularly the prices displayed by the retailer. The Bureau was concerned that Amazon was comparing its prices to false “regular” or “list” prices on its website Amazon.ca and on the Amazon mobile application. This practice gave consumers the impression that they were offered a good deal. In its defence, Amazon claimed to rely in good faith on the recommended list prices provided by its suppliers. However, according to the Bureau, Amazon should have verified the accuracy of those prices.
The Bureau is an independent agency responsible for enforcing the Competition Act and its mission is to preserve and promote competition in the Canadian marketplace. As part of its mandate, the Bureau regularly investigates allegations of anti-competitive practices that may contravene the Competition Act.
It is well known that consumers are more likely to buy if they think that they are getting a bargain. Savings claims are therefore an important marketing tool. Some retailers could be tempted to make false savings claims by showing inflated regular prices that are crossed out and replaced with lower sale prices. In order to prevent this type of misleading marketing practice, the Competition Act includes specific provisions prohibiting unsubstantiated savings claims. Under subsection 74.01(2) of the act, it is prohibited to make or allow someone to make false or misleading claims regarding a product’s ordinary sale price. To support an ordinary sale price claim for a product, a substantial volume of the product must have been sold at that price or a higher price within a reasonable period or the product must have been offered in good faith at that price or a higher price for a substantial period of time.
CONCLUSIONS OF THE INQUIRY AND LESSONS TO BE DRAWN
The Bureau’s inquiry concluded that Amazon’s practices created the false impression that prices offered by the retailer were lower than prevailing market prices.
The Bureau noted, however, that Amazon has taken voluntary and proactive steps to comply with the requirements of the Competition Act, including:
- initiating changes to its pricing practices prior to becoming aware that the Bureau had concerns with the savings claim representations;
- supressing the list prices of certain products available on www.amazon.ca, on mobile applications, in electronic messages, and in online advertisements; and
- adopting and implementing policies and procedures to ensure compliance with the requirements of the Competition Act pertaining to deceptive marketing practices, including the requirement that list prices be established in good faith for all products offered for sale by Amazon for Amazon Retail.
As the Bureau has stated, the agreement reached with Amazon sends a clear message to the marketplace that unsubstantiated savings claims will not be tolerated. Retailers must be able to substantiate the savings claims that they advertise and it is not sufficient, as a defense, to claim that the ordinary sale prices were provided by suppliers.
We expect that this agreement will push some retailers to change the way they establish their prices and to make sure that they are able to substantiate the ordinary sale prices that may be provided by suppliers.