Competition Bureau statement regarding its inquiry into Amazon’s price advertising in Canada
On January 11, 2017, the Competition Bureau (Bureau) registered a consent agreement following its investigation into the marketing practices of Amazon.com.ca Inc. (Amazon).Footnote 1
Amazon often compared its prices to a regular price—or "List Price"— signalling attractive savings to consumers. The Bureau’s investigation concluded that these claims created the impression that prices for items offered on www.amazon.ca were lower than prevailing market prices. The Bureau determined that Amazon relied on its suppliers to provide list prices without verifying that those prices were accurate.
The Competition Act ensures that consumers are not misled by references to inflated regular prices. When comparisons are made between a regular price and a sale price, they must be true. During the course of the Bureau’s investigation, Amazon voluntarily implemented specific policies and procedures to ensure its practices do not contravene the Competition Act. Amazon also agreed to pay a $1 million penalty and $100,000 towards the Bureau’s costs.
The penalty and the changes in pricing practices are part of a consent agreement that resolves the Bureau’s concerns and ensures compliance with the Competition Act going forward. The consent agreement is a binding document registered with the Competition Tribunal and has the force of a court order for a 10‑year period.
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Online purchases have become commonplace for Canadians. The online marketplace allows consumers to benefit from significantly greater choice and convenience. The Bureau works to build consumer trust and confidence in the online marketplace by ensuring Canadians have accurate information when making purchasing decisions.
The Competition Act promotes truth in advertising and includes specific provisions against unsubstantiated savings claims. These provisions apply to online retailers as well to bricks‑and‑mortar stores. With the adoption of Canada’s Anti‑spam Legislation, provisions were added to the Competition Act to provide additional tools for addressing false or misleading representations in all forms of electronic messages. The Bureau’s investigation into Amazon’s price advertising was made in accordance with these provisions.
The website www.amazon.ca and the Amazon Mobile App allow consumers to purchase a wide variety of products online, ranging from consumer electronics to household products. Amazon offers these products to consumers for sale by Amazon ("Amazon Retail") or third‑party sellers ("Amazon Marketplace"). The Bureau’s investigation focused on Amazon Retail.Footnote 2
The Bureau examined pricing representations that Amazon made to the public on www.amazon.ca, through the company’s mobile applications, as well as in electronic messages and online advertisements.
The pricing representations often compared the selling price of a product with a list price. On August 10, 2015, the Bureau undertook an inquiry under subsections 74.01(2) and 74.011(2) of the Competition Act to determine whether certain pricing representations made by Amazon in the promotion of Amazon Retail operations accurately reflected the savings available to consumers as compared to prevailing market prices. The inquiry focused on the promotion and sale of 12 movies in Blu‑ray format, as an example of the marketing practices used by Amazon.
Ordinary Selling Price (OSP) claims made by Amazon
As shown below, Amazon made pricing representations often comparing the selling price of a product with a list price, with the typeface struck‑through, such as "List Price:
CDN$39.99, Price: CDN$29.99". These pricing representations were often accompanied by specific "You Save" claims that set out a dollar amount of savings and a percentage discount off of the list price, such as "You Save: CDN$10.00 (25%)", (collectively, the "Savings Claim Representations").
Price: CDN$ 29.99 & FREE Shipping on orders over CDN$ 35. Details
You Save: CDN$ 10.00 (25%)
Overview of the inquiry
When advertisers make comparisons between two prices, consumers respond to the implied savings. This makes savings claims a powerful marketing tool. Subsection 74.01 (2) of the Competition Act is designed to ensure that, if an advertiser claims that its price for a product is discounted compared to the prevailing or ordinary market price, then that savings claim must be accurate. The Bureau’s Enforcement Guidelines: Ordinary Price Claims (the "Guidelines") provide that these kinds of representations cannot be made unless suppliers in the market have sold a substantial volume of the product at the represented ordinary price (the "Volume Test"), or alternatively, that these suppliers have offered the product for sale in good faith for a substantial period of time at the represented ordinary price (the "Time Test").
The Bureau conducted an inquiry into Amazon’s marketing practices to determine whether the representations complied with this provision the Competition Act. As part of this inquiry, the Bureau obtained information from different sources, and conducted daily monitoring of the promotion of 12 Blu‑ray movies by Amazon and its competitors.
The Bureau concluded that the Savings Claim Representations made by Amazon created the general impression that certain products were available to consumers at prices below that of prevailing or ordinary market prices. Evidence collected during the course of the inquiry allowed the Bureau to assess the pricing representations for the 12 Blu‑ray movies, as an example of Amazon’s marketing practices, using the tests described above and set out in the Competition Act and the Guidelines.
- The Volume Test
The Bureau concluded that, from at least May 27, 2014, until May 1, 2016, suppliers generally in the market had not sold the 12 Blu‑ray movies in substantial volumes at the list price (or higher) advertised by Amazon, within a reasonable period of time (12 months) before Amazon made the pricing representations; and
- The Time Test
The Bureau also concluded that other suppliers generally in the market had not offered the 12 Blu‑ray movies for sale at the list price (or higher), advertised by Amazon, in good faith (i.e. an honest belief that the market would validate the regular price) for a substantial period of time (six months) recently before Amazon made the pricing representations.
The Bureau engaged with Amazon to examine the way it conducts its overall pricing on Amazon Retail. Amazon stated that it relied honestly on the pricing information provided by its corporate suppliers to establish the list price of products it represented on www.amazon.ca. Amazon required its corporate suppliers to provide accurate information regarding the regular prices, and Amazon relied on its corporate suppliers without independently validating the regular price against suppliers generally in the market to determine whether these prices were accurate.
Amazon also advised the Bureau that it had in place a corporate compliance program relating to marketing and competition matters prior to the initiation of the Bureau’s inquiry, which was being complemented by new policies and procedures to address the conduct at issue. According to Amazon, the adoption and implementation of these policies and procedures are likely to have, and were already having, wide‑spread effect on the products sold on www.amazon.ca, including an impact on the pricing representations and related savings claims on www.amazon.com, Amazon’s American website.
Representations in electronic messages
Introduced as a result of Canada’s Anti‑spam Legislation, subsection 74.011(2) of the Competition Act relates to the making of a false or misleading representation in an electronic message. Amazon’s electronic messages contained pricing representations similar to the example listed above, and they provided hyperlinks that led the email recipients to www.amazon.ca. The Bureau examined these emails under subsection 74.011(2) of the Competition Act, and concluded that they raised concerns.
Cooperation throughout the inquiry
When negotiating the terms of the consent agreement, the Bureau took into account Amazon’s full and timely cooperation during the course of the inquiry, including Amazon’s voluntary efforts to address the Bureau’s concerns. As a result, the terms of the consent agreement are more favourable toward Amazon than would otherwise have been the case.
Amazon took a number of voluntary, proactive steps to ensure compliance with the requirements of the Competition Act. These included:
- 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 the Competition Act pertaining to Deceptive Marketing Practices,Footnote 3 including the requirement that list prices be set in good faith for all products offered for sale by Amazon for Amazon Retail.
The Bureau concluded that the Savings Claim Representations made by Amazon created the general impression that certain products sold on www.amazon.ca were available for purchase at prices lower than prevailing market prices. The Bureau concluded that the 12 Blu‑ray movies did not meet the requirements of the Time Test and Volume Test set out in the Competition Act and Guidelines, and that the Savings Claim Representations did not accurately reflect the savings available to consumers.
The Bureau is satisfied that the consent agreement reached with Amazon resolves concerns relating to its pricing practices and ensures compliance with the Competition Act going forward. The consent agreement has the force of a court order for a 10‑year period, and formalizes Amazon’s commitment to comply with subsections 74.01(2) and 74.011(2) of the Competition Act for all products it supplies in Canada.
The Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace. The Bureau investigates allegations of anti‑competitive practices and promotes compliance with the laws under its jurisdiction, including the Competition Act.
This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.
However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.
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The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.
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