Competing with Amazon on Amazon


Thousands of small merchants depend on Amazon.com Inc. to reach customers who otherwise wouldn't know they exist. A few of them complain, though, that Amazon sometimes eats their lunch.

According to some small retailers, the Seattle-based giant appears to be increasingly using its Marketplace--where third-party retailers sell their wares on the Amazon.com site--as a vast laboratory to spot new products to sell, test sales of potential new goods, and exert more control over pricing.

Jeff Peterson, owner of Collectible Supplies Inc., a Garden Grove, Calif., retailer of sports merchandise, last summer began selling $29.99 Pillow Pets--stuffed-animal pillows modeled after NFL mascots--through Amazon's site. For several months, sales were relatively robust, with as many as 100 of the Pillow Pets a day.

Then just ahead of the holiday season late last year, Mr. Peterson noticed Amazon had itself begun offering the same Pillow Pets for the same price while giving the products featured placement on the site.

Sales of Collectible Supplies' Pillow Pets soon fell to 20 a day "because Amazon was offering it," Mr. Peterson said. "I tried lowering the prices, but Amazon would always match my price or go lower until I eventually gave up" and set it at the manufacturer's suggested price, he added. Prices fluctuate, but Amazon was recently selling a Baltimore Ravens Pillow Pet for $12 with free shipping, while Mr. Peterson is again offering the product for $29.99.

"Amazon is a double-edged sword," said Thomas Frenchu, chief operating officer of Tabcom LLC, owner of dog.com, garden.com and others. "You have to deal with them, you have to be on their site, but we also have to fight harder and harder every day to compete with them."

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