The Most-Favored-Nation Clause That Makes Every Store Charge You More

The problem isn’t that you shopped wrong. It’s that Amazon made the cheapest price on the internet illegal for anyone but Amazon to offer.

The clause you’ve never heard of

Somewhere in the terms you clicked past, Amazon binds every seller on its marketplace to something it calls a most-favored-nation deal. In plain English it means this: if you sell on Amazon, you have to sell at the lowest price on Amazon. You cannot sell that same wallet more cheaply on your own website. You cannot undercut Amazon on your friends’ store, your factory outlet, or anywhere else on Earth.

Try it, and Amazon quietly buries your listing on page 10 million of the search results. The penalty for offering a better deal is being made invisible.

That single clause is why the “Amazon tax” is now economy-wide. It’s not just something you pay if you click “Buy Now” with two-day shipping. You pay it even if you’ve sworn off Amazon entirely.

How the tax spreads

Amazon’s junk fees, the cut it takes from merchants, were running 45 to 51 percent when Cory Doctorow first documented them. Today they’re 50 to 60 percent. No independent business runs on margins like that, so prices on Amazon have to go up. And because of the most-favored-nation clause, they have to go up everywhere else too.

The moment a merchant raises prices on Amazon to survive the fees, they’re contractually forbidden from selling more cheaply at Target, at Walmart, at the mom-and-pop down the block, or at their own factory store. Otherwise they lose the affluent consumers who start their shopping journeys on Amazon and never leave.

So the exact same widget is now more expensive at every store on the high street, even the ones that have never touched Amazon. Everyone pays the Amazon tax. It’s an economy-wide tax, and shopping more carefully does nothing to stop it, because the monopoly isn’t a shopping habit. It’s a contract.

Why you’re stuck there

This didn’t happen by accident. Amazon sold goods below cost for years to drive rivals out of business, then jacked up prices once they were gone. Prime was the blunt instrument: Amazon pre-sold you a year of shipping at a loss, so you started your shopping journey there, and if you found it, you stayed there. After three K-shaped recoveries, almost all of the consumption capacity in the American economy sits in the richest ten percent, and they all have Prime and all start on Amazon.

And once everyone’s stuck on Amazon, the fees climb. When Doctorow wrote the book, Amazon’s ad business was making $30 billion a year. Two years ago it was north of $50 billion, double the revenue of every newspaper in the world combined. Last year, $80 billion. Search-result placement itself is auctioned off, a legal version of the old radio payola scandal, and the top result is on average 29 percent more expensive than the best match. The top row, 25 percent. You have to scroll seventeen places down just to find the right thing.

Everybody loses. The sellers lose, because they’re bleeding money that could have been a lower price or a better product. The shoppers lose, because they’re paying more and seeing worse. And the people who refuse to shop on Amazon lose too, because the most-favored-nation clause reaches into every other store on Earth and jacks up the price anyway.

That’s the trick of it. Most-favored-nation doesn’t just lock you into Amazon. It locks you out of ever finding a better deal anywhere, even on Amazon’s competitors. The whole market has to charge you more, so the monopoly can keep its cut.

This is a real case, documented by Cory Doctorow on the Jordan Harbinger Show. The excerpt below walks through exactly how the most-favored-nation clause becomes an economy-wide tax.

Watch the full episode (The Jordan Harbinger Show) – the most-favored-nation section starts at 53:11.

The receipt

• The scam: A contract clause that forbids selling for less anywhere else, making Amazon’s fees a tax on every store on the planet.
• The mechanism: Seller lock-in via most-favored-nation price parity, paid placement, and predatory Prime pricing.
• Why it’s still running: Three K-shaped recoveries concentrated all consumption in the top decile, who all start on Amazon, so no merchant can afford to leave.
• The fix that’s missing: We stopped enforcing the competition law that exists precisely to stop this. Enforcement, not better shopping, is the cure.