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Reading 2022-01-28

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Notes from reading

The "Sold by Amazon" program restrained price competition

Amazon enticed sellers into the "Sold by Amazon" program by guaranteeing that they would receive at least an agreed upon minimum payment for sales of their consumer goods in exchange for their agreement to stop competing with Amazon for the pricing of their products. Consequently, if sales exceeded the negotiated minimum payment, Amazon and its competitors split the surplus proceeds amongst themselves. For example, if a seller and Amazon agreed to a $20 minimum payment and the item sold for $25, the seller would receive the $20 minimum price and share the $5 additional profit with Amazon, in addition to any fees.

As a result, when prices increased, some sellers experienced a marked decline in the sales and resulting profits from products enrolled in the program. Faced with price increases, online customers sometimes opted to buy Amazon’s own branded products — particularly its private label products. This resulted in Amazon maximizing its own profits regardless of whether consumers paid a higher price for sales of products enrolled in the Sold by Amazon program or settled for buying the same or similar product offered through Amazon

participating sellers had limited, if any, ability to lower the price of their products without withdrawing the product’s enrollment in the Sold by Amazon program. Amazon subsequently prevented many sellers from continuing to offer discounts. Sellers then bore the risk of having their products not sell in a timely manner, or at all, while still paying Amazon for things like storage fees of their enrolled products. Many sellers remained stuck with an artificially high price for their products while Amazon was able to maximize its own profits

ref: moate
A supermarket sells both Rao's Pasta sauce (7.99) and MarketBrand Pasta Sauce (2.99). The difference is that the store has paid Rao's 2 dollars to purchase their sauce which they then mark up to 7.99, and had their store band produced for them at a purchase price of 1.25. Both manufacturers have been compensated for their products.

Instead, what Amazon does is take a shipment from Rao's with the promise that they will be compensated 2 dollars for each bottle that is sold (which requires Raos to tie up inventory/money) and then undercuts their price with a product that they produce themselves and list on their page much more prominently, after using Rao's product previously to demonstrate market demand for that type of good in their store.

ref: moate
consignment model: stocking a product owned by another entity and giving them a cut of the sale price. It has minimal risk for the retailer, and typically involves non-perishable goods (clothes, electronics, etc)

wholesale model: retailers purchase the product at a discounted price from another entity and then sell it at their location for a higher price. Wholesaling comes in 2 main forms: As described above, or "buyback". With a buyback contract, risk is shifted back onto the producer, as any unsold stock at the end of the contract term is "bought back" by the producer, typically at price they sold it to the retailer (possibly minus stocking/shipping fees)