Amazon Makes Money Exploiting Honest Merchants
The Market Ticker - Commentary on The Capital Markets
2017-11-24 16:39 by Karl Denninger
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Amazon Makes Money Exploiting Honest Merchants
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It's not enough to lobby.  Nor is it enough to buy a newspaper that then has one of its "allegedly honest" writers show up as a speaker at a hard-left political confab the purpose of which is to tilt United States political policy.

Now we've got another report -- this one from merchants, and it's ugly.

Mike Molson Hart, who sells toys on Amazon.com Inc.’s marketplace, realized earlier this month something was amiss. His company’s popular disc-shaped plastic building set, called Brain Flakes, had dropped precipitously in the ranks of Amazon’s best-selling toys as the critical gift-giving season approached.

He visited the product page on Amazon.com and suspected he was the victim of "sniping," when one merchant sabotages another by hiring people to leave critical reviews of their goods and then voting those reviews as being helpful, making them the most prominent feedback seen by shoppers. 

This is a problem trivially solved by Amazon: Do not allow "reviews" from people who haven't bought the product through the site!

But that would cut off the ability of Amazon to exploit people like Mike.

You see, Amazon basically runs a "free" slander service for Mike's competitors right in the middle of his ****ing store!

Amazon knows it too, and what's even worse is that Amazon has many "competitors" for a lot of products on their site.  As a result there is plenty of incentive for unscrupulous vendors to do this sort of thing to their competitors and there is nothing Mike can do about it, especially given the layers of indirection and the offshore location of the places selling this "service" to his competitors where he is effectively prevented from suing.

Of course Amazon will say it polices these sorts of things.  Suuuure they do.  How else, other than through willful blindness, could 10 people slander Mike's products from a nation he has never shipped them to?

Allowing this sort of fraud doesn't cost Amazon any money and in fact probably makes them money since the "competitor" who does this is doing it because he or she sells the same thing and thus Amazon gets a cut of the business either way.  They thus simply do not give a crap; if Mike gets bankrupted and someone else takes all of his business on Amazon Jeff Bezos does not care.

But this means to be "successful" if one of your competitors is slandering you in this fashion then you need to slander all of them or you will lose sales, comparatively, to them -- maybe enough to ruin you!

In other words Amazon has built an environment where not only are the incentives built-in to do actionable or even illegal things they become effectively mandatory to be successful once any of your competitors begin to engage in these tactics.

I think there's a pretty clean argument here that this is an intentional "attractive nuisance", given that Amazon could trivially prevent it -- but for commercial reasons has chosen not to.  Further, by allowing such slander right in the middle of your store with absolutely no way for a merchant to stop it how is it that Amazon escapes joint and several liability with the competitor and the slanderer?

If you're curious why I find the entire concept of opening any sort of business repugnant in today's legal and political environment here's your poster child for the reason.  My competitors could easily abuse such a capacity to damage me and I would have no means of addressing it other than engage in the same conduct aimed at them.

In other words I have to be a crook or I'm bankrupted by all the crooks since those who allegedly "partner with" in some sort of business relationship will sit back and let the crooks ruin me, effectively providing them with the means to do so!

Amazon needs to be sued out of existence for this crap and destroyed, along with any other firm that puts forward such an outrageous enticement to and protection for people engaged in these sorts of nefarious activities.

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Bagbalm
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Just North of Detroit
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What this means to me is I can't trust any reviews on Amazon so I won't buy anything that is from third party vendors who ship from overseas. Think it doesn't hurt Amazon? It sure does if people go elsewhere.
Tickerguy
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No, it's worse @Bagbalm

It's ALL third-party sellers. The reason is that EVEN IF THEY SHIP FROM HERE you're still ****ed; the seller buys the "slander service" from an overseas source which can't be (reasonably) sued, and thus the firm HERE in the US doing it can't be identified.

NONE OF THEM can be trusted because ALL OF THEM have to be assumed to be doing this, since it's the only way to survive!

That's what an environment that encourages and looks the other way when outrageous **** like this happens causes. It irrevocably corrupts the market because there's no way for an HONEST seller to actually get anywhere. Only big multinational companies can go after the sources of this sort of slander; anyone smaller simply can't.

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Winding it down.
Krzelune
Posts: 5825
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I've got three kids, 21, 18, 17. None of them have been taught in school about monopolies and they went to good schools. They do know about them because I've been complaining about it now for three or four years. I remember learning about vertical, horizontal and some of both, Monopolies, in Civics, in a public school... in the 80's. I don't think that bodes well for how well the public understands consequences to what is going on. Also been watching those old WW2 documentaries on the blitz bombing of German cities. We are going to forget about that pretty soon too.
Goforbroke
Posts: 7158
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Time to feed the chickens.
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To think that Amazon will police itself on any of its practices is absurd.

It's the role and responsibility of "our representatives" to hold them accountable.

I'm not holding my breath.

This country has become a sham.

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Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our Light, and not our Darkness, that most frightens us. -- Marianne Williamson
Aztrader
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Scottsdale, AZ
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We have run into this many times. I actually lost my personal store about 6 years ago when the competition started leaving my store a bunch of 1 star ratings and Amazon shut it down without even telling me why. We have had to take down listings with the bogus reviews and relist under another UPC code to get rid of the bogus reviews. Unfortunately, this takes your product out of the existing listing loop making you start over for reviews.
Amazon always puts their prime listings at the top and will violate MAP pricing to keep them at the lowest price. Amazon removed all of our pepper guns in one fell swoop about 6 months ago claiming that the lasers were illegal. This had to come from one of our competitors and when I went to relist them, I couldn't use the term LASER in any of the titles. Thanks to that, our sales are down over 90%. Taser is still listed and they all have lasers.
Amazon is run by idiots that know very little about retail and less about vendors. I would love to be a fly on the wall when they are discussing how to destroy 3rd party vendors.

Tickerguy
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I'm glad I'm not in your line of work as I might decide to spend my life.

This **** pisses me off to no end - Bezos is hiding behind Sec 230 of the CDA by the way, which is a MASSIVE perversion of its intent.

**** him.

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Winding it down.
Bagbalm
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Just North of Detroit
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OK that was an eye opener that being fulfilled by Amazon means zip.
Cerich
Posts: 968
Incept: 2008-12-17

ga
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screw amazon, I decided to sell some of my product on there, a product I get a whopping less than 1% return rate on my website selling, on amazon got a 36% return rate, decided to make it so the buyer paid the return shipping. Quickly found out that amazon was telling customers to select as a return reason "defective" and amazon would issue them a call tag and charge me for it. The reasons for being listed as defective was stuff like "didn't like". They knew it wasn't defective and did it to make the consumer happy while punishing me for having the nerve to say that I wasn't paying for returns on weekend rentals or size trying etc.

**** them, they are beyond disgusting.

The only winner with amazon at this time is stock holders and consumers, everyone else they **** and eventually the plan is too **** everyone.
Tickerguy
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I say nuke em from orbit.

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Winding it down.
Copernicus-usdd
Posts: 37
Incept: 2013-03-08

Houston TX
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I have dabbled in selling as a 3rd party merchant on Amazon...here is what I don't get...they get 15% off the top..at least...no inventory...no shipping cost...nada...

The platform is established, and the marginal cost of my listing can't add up to much...
How is it possible to lose money on that? Margins should be huge...but they aren't??

Not sure what % of Amazon sales are third party though

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UsDailyDeficit.com
Copernicus-usdd
Posts: 37
Incept: 2013-03-08

Houston TX
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On pricing... Amazon charges 3rd party sellers 15% off the top...Shipping is the same..assuming a credit card transaction fee of 3%...I can set the price 12% lower on my own site and keep the same profit...or split the difference :)...win win for me and my customers.

However...the biggest problem we have with Amazon is their return policy....which they encourage customers to abuse.

So yeah...we sell on Amazon... but the price is quite a bit higher and we are doing everything we can to push sales to other channels

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UsDailyDeficit.com
Tickerguy
Posts: 150730
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If your paying 3% for plastic you are being ****ing ROBBED!

Who is charging you the 3 percent?

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Winding it down.

Copernicus-usdd
Posts: 37
Incept: 2013-03-08

Houston TX
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I rounded up for simplicity, but still curious...what's a good rate for online transactions, and from who?

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Dennisglover
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Huntsville, AL
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On the "plastic surcharge", that reminds me of something.

In 1978 I, a newly minted and certificated band director, took a job with the Fayette County (Alabama) Schools, for the purpose of establishing a band program in one of the tiny elementary and high schools. Economically, this was a very depressed area of the State, and musical instruments incurred significant costs to a lot of families. Of course, on the other hand, a whole lot of families had BankAmericard (now Visa) and MasterCharge accounts.

A music store owner in Huntsville, a native of Fayette, also had a shoestring store operation there. (For purposes of full disclosure I will tell you that this music store owner was the only reason I ever had a chance to interview for that job, and consider it likely that his connections in the good-old-boy setup there was the final deal breaker for my teaching contract.)

Music stores sell instruments, method books, stands, musicians' chairs, instrument lubricants, repair services, and the like, and, since he was originally a local many people in those schools gave their business to him, rather than Tuscaloosa Music (45 miles away) or Nuncie's in Birmingham (about 90 miles away). His repair services were very much more economical and convenient than they were in the bigger and more distant cities, and of course that became a big draw for his offerings.

Not to mention, he had at the same time I got my contract, hired a New York guy, a recent graduate of the State University of New York system, to manage the store, service the schools, and repair instruments (all jobs at which he was extremely good, almost a natural, I would say). We became close friends, as we were both "outsiders" in those towns, enjoyed a beer now and again (which we had to drive to Tuscaloosa County to buy, or to Mississippi), and pretty much tried to keep off the radar of the local, um, how to say it(?)--well, the Klan was there, and they didn't like uppity Yankees and "big-city" fellows getting any strange ideas...

How does "plastic" tie into this? (That's kind of where I started, you know.)

The owner offered an alternative to the charge cards, and allowed an 18% discount against purchases paid for in cash, or he would finance those purchases at a 1%/month "simple add-on" interest--if someone bought a $150 beginner drum kit (Ludwig "Satellite"), and agreed to pay it off in one year, then the finance charge would be 12% of the $150, or $18.

I noticed over a period of time that his local manager did often have to go out into maybe not the best part, or the safest part, of town or the county, to repossess instruments. (On one very cold, very windy, very dark night I went with him to repossess a flute or something from one of the town's big bootleggers. That was a most interesting exercise, resulting in the instrument being paid off on the spot. I still think I can feel all the firearms pointed sort-of-at-me that night.)

So I asked the owner why he didn't just refuse credit to his customers and let the credit card companies handle all the demand letters and repossessions and such, when handling it himself put him, his employee, and his business at risk. He then explained that BankAmericard and MasterCard imposed a 15%-18% surcharge on him at the point of sale, and that he didn't want to raise his prices in order to cover the difference, since him financing it at that 12% per annum simple add-on interest rate was much more profitable to his business, and cash on the barrel-head was even better.

His store in Huntsville is still in business, but he's in his mid-80s now and the business is managed by his younger daughter, so I don't know how such things are handled, but I would not be at all surprised to learn it's exactly the same now as then.

But this 3% surcharge/fee/whatever-it-is, except for the fact that it's still shameless raking from the top, doesn't seem nearly as bad as it was ~40 years ago. That doesn't make either of them right, not at all. And it's still financial******(or financial consensual sex, whichever) either way.

Now, of course, it occurs to me that, in order to offer that 18% discount (or the 6% annual discount, if you will), he was still forced to inflate his price list in a significant manner to enjoy the business of those customers who absolutely would in all circumstances use the credit card. In my mind that's the very best illustration of what should be illegal economic pressure I can imagine.

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TANSTAAFL

Reason: clarify 2% to 3% fee
Tickerguy
Posts: 150730
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MCSNet had a 1.5% discount rate and 99% of our business was "card-not-present."

Yes, we worked HARD to get that. The best rate was found with the bank that handled our business accounts, and I shopped it HARD.

No, I would not have paid 3% or more. That was ****ing loan-shark territory, and there were plenty of people trying to get us to take such a "deal".

They all, to an individual, got a string of 4-letter words back at them, and most involved some sort of threat of dismemberment or non-consensual sex aimed at the salesperson as well.

This was in the 1990s, so... yeah.

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Winding it down.

Dennisglover
Posts: 913
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Huntsville, AL
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Well, that was in 1978, about 18-21 months after President Carter took office. My best sources show inflation that year at 9% and the Fed Fund Rate at 10%, so that was a particularly awful time in this country.

There was then all kinds of hysteria going on all over the place. When I took that teaching job my idea was to spend an entire teaching career in one place, one set of schools, building a fine instrumental music program, and walk away after 35-40 years with a good retirement. To stay in a place one must have a place to stay, so I looked at a couple of new houses being sold in the $28-$30K range (3 BR, 2 BA, 2-car garage, 2/3 acre of land). I talked to the banker, and he said (basically), "Son, you only earn $10,500 a year. You can't afford a $30,000 house."

Four years later I was no longer a teacher.

Meh--No great loss, either personally or to the profession.

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TANSTAAFL
Tickerguy
Posts: 150730
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The discount rate has nothing to do with what a credit card company charges its customers. It is simply a charge for handling the money from one place to another, and other than the unrecoverable chargeback risk and interbank exchange rate (which is measured in BASIS POINTS, not percents) it's pure extortion.

Everyone has to make a profit to remain in business, but remember that chargebacks are hella-profitable for the processor. They get to hit you with a fee (usually in the range of $25 EACH) AND they have direct access to your bank account, so their risk of non-recovery is nearly zero. Of course if you have no money that's a different issue, but we weren't cash-starved by any means, and our bank knew it. That was the other negotiation point I hammered on -- we only paid when we LOST, and since we had excellent records and could prove it, despite having five-figures of customers billed every month we lost about one or two contests a YEAR -- all from actual stolen cards. Other than that we NEVER lost.

It's all a management thing. If you let yourself get pushed around, well, you'll get raped. Don't.

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Winding it down.

Sandor
Posts: 1998
Incept: 2007-08-08

Marathon,Fl
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If more people chose life experiences rather than sitting online buying **** they don't need this would be a moot point.
Aztrader
Posts: 7883
Incept: 2007-09-10

Scottsdale, AZ
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We actually use Paypal more then our credit card bank simply because in many cases, they will protect us against the scum that claims they never received the product if we require a signature which I do on all of our pepper guns. I got our rate down to 2.2%, but they have saved our store many times. Last month a guy ordered 4 gun kits which really set off the alarms, but the card cleared fine and we shipped them. He then claimed that it wasn't him that signed for them and filed a lost package claim with Fedex. Of course Fedex went with the signature knowing that their driver didn't walk off with the product. Customers are becoming more and more brazen because of Amazon's and EBay's return policies. They both have a box that allows to refund the product and keep the product which gives the crooks an angle on getting free stuff. Most businesses will walk away from a small sale because the return shipping can be expensive. When this becomes known to more of these customers, then you will see more of the 3rd party sellers walk away from these sites due to more abuse.
I always worry about any large sale on Amazon because I know my dealer will get screwed on one of those, "I changed my mind" issues. Now Ebay is also getting into that "Free" CUSTOMER return and will soon have no way to re-coup your free shipping on a customer return. The BS that the customer is always right is ripe fore abuse. When they know that they don't have any skin in the game, then who cares.
We know how much Amazon's procurement charges have exploded and it's due to returns. I automatically will charge a customer off my website on returned that are not defective. We are not Costco and could never afford to be.
No business can stay in business with their business model unless they are being subsidized by wall street like Amazon.
Jduwaldt
Posts: 641
Incept: 2010-06-10

Orange County, CA
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Huh. Analogous to the housing boom in the early 2000s: If you were a bank (Golden West I believe was one) and you weren't willing to loan people 4x-6x (or more???) times their income because you KNEW it would hurt them in the long run then the guy down the street (Country Wide, etc etc etc) WOULD and then if you refused to play along your business would dry up and you were gone...

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It's not an issue of "cooperation" vs "go it alone": it's a question of involuntary vs voluntary relationships.
Tickerguy
Posts: 150730
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Exactly.

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Winding it down.
Aztrader
Posts: 7883
Incept: 2007-09-10

Scottsdale, AZ
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Was on Amazon doing a review today and found 2 playstation digital subscriptions on the review page. Since I don't play video games and have no children, I went deeper into the system and still couldn't find the orders. I went to my credit card and found 2 duplicate charges. After 20 minutes on the phone, they are working to refund the $200.00. This is way too strange because this happened in October on my business card and never saw the order come through and it never showed up on my orders, including digital orders until I found them on the review page. It can be so easy for them to steal your money and unless you balance your cards every month, would have never found it.
Tickerguy
Posts: 150730
Incept: 2007-06-26
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Is that card one you used on Spamazon (e.g. did they have access to the number previously?)

Spamzon has either so far not had their database stolen or has kept it quiet.

Or have they?

A material compromise of their customer's card numbers, given how many they have on file (and they store the WHOLE THING, which incidentally is a MASSIVE problem from a PCI perspective as it will come back on THEM under the PCI rules) could easily ruin the firm.

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Winding it down.

Aztrader
Posts: 7883
Incept: 2007-09-10

Scottsdale, AZ
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They are checking it for theft. Card is on file.
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