School districts and local governments across the country appear to be overpaying for basic supplies because of Amazon contracts that bind them to dynamic pricing, according to a new report based on government data and public records analyzed by the non-profit Institute for Local Self-Reliance.
A school district in Denver, Colorado, would have saved about $1m in 2023 had it been able to negotiate for and lock in the lowest of the platform’s continuously changing prices, according to one estimate cited in the report. Denver public schools, which spent $5.7m with Amazon that year, “could have saved 17 percent” had it “consistently received Amazon’s lowest prices”, the report said.
On 15 August 2023, for example, Denver’s school district placed two separate orders for two bulk cases of dry-erase markers, researchers found. The district paid $114.52 for one, and $149.07 for another.
Under dynamic pricing, companies like Amazon use algorithms to continuously readjust prices based on real-time data. Supporters say these tools help companies adjust to changes in supply and demand, but regulators have warned of their potential to set high prices.
Researchers were able to obtain detailed data on roughly 55,000 purchases of repeatedly-ordered Amazon items from 23 public entities, including Denver’s school district. The items included Elmer’s glue, Amazon-brand copy paper, Lysol cleaning wipes and Crayola crayons. On average, the report found, the localities could have saved 17% had they “consistently received the lowest prices Amazon charged” for those items.
Amazon “has persuaded cities and school districts to abandon competitive bidding and surrender to its dynamic, algorithm-driven pricing”, the Institute for Local Self-Reliance said. “This opaque system subjects buyers to erratic price swings and allows Amazon to covertly inflate prices and overcharge schools and cities.” Amazon noted in an email that not all of its government customers have contracts with the company.
The nonprofit is calling on local and state governments to ban dynamic pricing in public procurement and to prioritize independent, local businesses for supply needs.
In a statement, an Amazon spokesperson said the “flawed and misleading” report “misrepresents the facts and does not reflect the significant cost savings” it gives to customers “by offering everyday low prices that meet or beat other online providers and powerful tools to lower their spend”. The spokesperson also said its platform “makes it easy for customers to search for and purchase supplies from certified local businesses and diverse sellers in their area to drive local growth”.
The Institute for Local Self-Reliance, a frequent critic of the tech giant, said public agencies’ spending with Amazon has ballooned as local governments have shifted away from negotiating for locked-in, low prices with local vendors and adopted the online retailer’s one-stop platform.
In 2023, school districts and local governments serving more than 50 million Americans spent $2.2bn with Amazon – a nearly fourfold increase since 2016, researchers for the nonprofit found. Of nine school districts for which the group was able to gather data, Amazon spending jumped from an average of about $462,000 in 2016 to $1.1m in 2023, adjusting for inflation.
In one case in Iowa City, two school employees ordered identical cartons of FritoLay snacks on the same day in 2023, according to the report. One paid $26.22. The other $34.31. The district did not respond to a request for comment.
Berkeley county schools in West Virginia bought three identical play kitchen sets on another day that year, researchers found. It paid $89.99 for one, and $107.55 for the other two.
In an email, a spokesperson for the Berkeley county schools said the district complies with state purchasing guidelines and processes.
In a statement, Amazon questioned the study’s validity.
“Pricing research is notoriously difficult to conduct accurately and typically lacks reliable methodology, including cherry-picked product selections, mismatched product comparisons, and comparing in-stock items with products out-of-stock at competitors,” an Amazon spokesperson said.
The company also noted it “offers customers price ceilings that ensure they don’t pay above an agreed price, while automatically capturing savings when prices are lower”.
The shift to Amazon
The Institute for Local Self-Reliance report drew on interviews with local government leaders and suppliers, government contracts and spending data from 122 state agencies and 128 local governments across the US. Many of these agencies, researchers found, have increasingly acquired office supplies, like tape and tissues, through Amazon Business, a purchasing portal for organizations, including government agencies.
Like Amazon’s platform for everyday consumers, the centralized shopping platform allows government officials to scroll through a familiar interface with a large selection of product offerings, the company notes. The portal, featuring items from the tech giant and third-party vendors, allows government officials to make procurement decisions in just a few clicks. But this convenience means that government officials are not doing the work of actively soliciting bids and bargaining with vendors to guarantee lower prices, the Institute for Local Self-Reliance report asserts.
In March of 2023, for example, Denver public schools paid $15.39 for a red Swingline stapler sold by Amazon, according to the report. A few days later, the district paid about four times that amount, $61.87, for the same stapler sold by a third party seller on Amazon.
In a statement, Scott Pribble, a spokesperson for Denver public schools, said that Amazon Business helps the district by “streamlining the acquisition of essential supplies”, but said the district was “committed to continuing to review” its practices.
“Amazon is an ongoing conversation within our purchasing department and our staff try to monitor purchases and steer users to better values as much as possible,” Pribble said, noting that the district takes its responsibility to be an “effective steward of public funds” seriously.
In response to the nonprofit’s criticism, Amazon pointed to the public school district of Green Bay, Wisconsin, which has used a “bulk buying” tool from the company to save on headphones and linguistic books, according to a promotional blurb on Amazon Business’s website.
Jake Alverson, Green Bay schools’ procurement director, told the Guardian in an email that Amazon was a valuable partner, and that if the company did not offer the lowest cost, district staff “are able to purchase from other vendors”.
“Our procurement spending has remained largely the same since we began partnering with Amazon,” he said, adding that with the company’s “vast logistical footprint” the district had seen “supplies delivered more expeditiously”.
Amazon also referred the Guardian to a recent study that found it offers lower prices than other online retailers.
The Institute for Local Self-Reliance contends this rapid, digital procurement approach is less transparent than older methods.
Historically, localities have publicly solicited bids for supply purchases, allowing companies to respond with price lists and delivery commitments, the report said. Bid documents were often publicly available and suppliers sought to win contracts by offering agencies multi-year commitments.
Amazon’s model “discards these safeguards”, its contracts include no price lists, and new prices for products purchased through its portal do not necessarily go through a public vetting process, the research nonprofit argues.
The company’s contract with Utah, for example, notes: “This contract has a dynamic pricing structure in which the price for items listed on the online digital marketplace is driven by the market. This contract will not need to be amended when prices fluctuate.”
In an email, Amazon pointed out it offers local agencies price ceiling tools to protect them from paying above negotiated prices while capturing savings when those prices drop before ceilings.
Likewise, in a promotional article on Amazon’s website, Chris Hughes, Utah’s chief procurement officer, said that the company’s platform had increased oversight by enabling his team to track purchases that individual employees might otherwise have been making on individual Amazon accounts.
Hughes did not respond to a request for comment.
Previous allegations about Amazon’s algorithmic pricing
In 2023, the Federal Trade Commission (FTC) and 17 state attorney generals filed a lawsuit against Amazon accusing the corporate giant of extracting over $1bn from consumers through a secret algorithm internally codenamed “Project Nessie”.
According to the government complaint, Amazon’s algorithm predicted the likelihood that other online retailers would follow Amazon’s price increase, and then “increased products’ prices when those price hikes were most likely to be followed”.
“The sole purpose of Project Nessie was to further hike consumer prices by manipulating other online stores into raising their prices,” the FTC alleged in its complaint.
In response to the allegations in the lawsuit, Amazon denied wrongdoing in court and referred the Guardian to a previous company statement arguing the FTC had it “backwards”, and that a successful outcome for the regulator would be “anti-competitive” and “anti-consumer”.
The case continues.
