The Dark Side of Online Shopping

In 2023, UK-based Reddit user “pacacinnoscafe” wrote that they endured chemical burns after reordering their usual sunscreen from Amazon. Chemical burns cause symptoms that are similar to those of a first-degree burn: red, swollen, and painful skin that may develop blisters. Although the product appeared legitimate, it turned out to be a fake. Pacacinnoscafe was wondering what recourse they had, if any, given their excruciating pain. Fake products have become a feature of digital environments. In 2017, twenty Toronto police officers gathered $2.5 million worth of fake goods: makeup that caused rashes, fake Thomas the Tank Engine toys, a Bluetooth headset that overheated, and a Magic Bullet blender that smoked when turned on. When shopping online, sometimes you just get ripped off, but other times, your skin might get seared. The gap between what we believe we’re purchasing and the reality of what finally lands on our doorsteps has become a celebrated expectation-versus-reality meme. Hilarious examples of misshapen Halloween costumes, flimsy fashion, or furniture better suited for a dollhouse are shared online for a laugh. These are often framed as “online shopping fails.” But this mismatch shouldn’t be normalized or blamed on shoppers duped by fake reviews and convincing images. Too often, a counterfeit knock-off is masquerading as the real thing, and these imitations can have grave consequences. Take the examples of fake tourniquets on Amazon, fake oven gloves that can’t withstand heat, or an airplane safety harness for kids that claimed to be approved by the US Federal Aviation Administration. Amazon has shipped expired baby formula and other past-their-due-date foods. The liabilities involved go beyond copyright and trademark infringement, making real harm not just a possibility but a guarantee. People increasingly can’t, and shouldn’t, trust what they see when shopping online. Consumer scams and rip-offs have soared with the rise of e-commerce juggernauts like Amazon, eBay, and Etsy. The now-popular structure of digital platform marketplaces has been called a boon to counterfeiters. An estimated $2 trillion worth of counterfeit products are sold each year in the United States, and counterfeits are now the top illicit trade in the world. A recent CBC Marketplace investigation purchased products from AliExpress, Amazon, eBay, Walmart, and Wish (a personalized shopping platform) and found that more than half of them were suspected fakes. In its efforts to curtail counterfeits, Amazon says it found, seized, and discarded more than 7 million fraudulent products globally in 2023, according to its most recent Brand Protection Report. Consumer protection issues are relevant to competition policy, because the Competition Bureau enforces against deceptive marketing practices. Under the Competition Act, it is against the law to advertise in a way that is false or misleading. False claims influence purchasing decisions; lying to a prospective customer to win their business is clearly anti competitive. While monitoring for these tactics occurs independently of the size of a firm, it is the largest e-commerce gatekeepers that are ground zero for this problem. Digital market companies, from Amazon to Uber, promised to be a neutral gateway between buyers and sellers, often fighting regulation by claiming that they were simply platforms. But, instead, they became private regulators, organizing online markets in their favour when it bolstered their interests, while behaving as absent cops on the beat when it was more convenient to ignore gnawing problems. Counterfeit products and fake reviews have proliferated online because major platforms are not incentivized to deal comprehensively with the problem. A major contributor to revenue for e-commerce platforms is advertising, and they’re often willing to offer ad space to any seller who’s buying, regardless of whether they’re a scam. Counterfeit products often win top placement on the sites, because they are cheaper than authentic products. In the absence of stronger regulatory oversight, it’s all too easy to dump the navigational burden on the consumer, who is forced to gamble every time they purchase a product. And while companies like Amazon have implemented some measures to combat this problem, the aggressive expansion of their e-commerce platforms is prioritized over safety and public interest. The platforms have proven unwilling or unable to police these problems—similar to how they have fared in their struggles with content moderation. In the case of counterfeits, the millions of packages arriving into the United States each day now overburden law enforcement and customs and border protection agencies. Legitimate third-party sellers are hesitant to give even more competitive information and data to Amazon, often their biggest competitor, to substantiate that they are real businesses. Again, it wasn’t always this way. The market globalization that coincided with the e-commerce boom initially seemed promising for shoppers. Suddenly, we weren’t constrained by factors like geography and available transit, or reliant on the curation of major catalogues to have access to a wide variety of products. From the comfort of our homes or while on the go, thanks to broadband connectivity and the ubiquity of mobile devices, we could scroll and shop, skim customer reviews, and compare prices with just a few glances. There was a sense of empowerment as the internet started to change how, where, and when we made purchasing decisions. But that renewed autonomy created a false sense of control that has since deteriorated. What initially made e-commerce so great—primarily, the ability to quickly search for product comparators across a range of stores and geographies, compare price, and be informed by reviews—has become unnecessarily difficult and disorienting. It’s not just counterfeit products. It’s getting harder to make the best possible choice when you shop, because firms of all sizes do sneaky things like give preference to their own products, make inflated claims through undisclosed influencer marketing, secretly change the shape and size of their products, degrade product quality, or rush you to buy things online through deceptive hurry-up design. Our trust is being manipulated and exploited, and the tactics used by firms to take advantage of consumers are making markets less knowable and more confusing. One answer to unreliable marketplaces and sluggish productivity has been the battle cry of more competition, with an emphasis on the raw number of firms competing in a particular place or the number of products in a category. But just adding a couple of competitors won’t do enough to address a deeper underlying issue: a growing mistrust of marketplaces that frequently deceive shoppers. This unreliability isn’t worth a cheaper sticker price. Companies are increasingly shameless in employing deceitful tactics to pad their profits. For instance, our grocery purchases have recently been declining in weight or volume while the price stays the same or even grows. Selling less of a product for the same price is referred to as “shrinkflation.” A chip bag that is two-thirds air but costs more than it used to is a common example. “Price pack architecture” is a euphemism that corporate leaders have used to refer to the practice of shrinkflation. This refers to a company’s strategy of offering products in various packaging sizes and price points. While this activity can provide more choice to consumers, it also makes price comparisons more challenging and potentially leads to higher costs per unit for smaller packages. Similarly, corporate advice to use more of a product per serving so that it gets replaced or repurchased faster is called “usage-flation.” This has been documented with Gatorade and such foods as yogurt, Nutella spread, pasta, soup, cheese, coffee, and instant oatmeal. “Skimpflation” occurs when cheaper ingredients have been substituted but the price stays the same. This trend has been noted most often with palm oil as a substitute in milk chocolate. These tactics are particularly alarming in an inflationary period, when people are already feeling squeezed. Many consumers have reallocated household spending toward discount retailers with a greater focus on deals. But even the best deals can be a mirage. Walmart’s checkout machines have allegedly been inflating the weight of groceries. The corporate giant settled, for $45 million, a class-action lawsuit which accused it of falsely inflating the weight of certain grocery items, mislabelling the weight of bagged produce, and overcharging for sold-by-weight clearance products, forcing customers to pay more for them than their lowest advertised price. Talk about a raw deal. Many other profit-maximizing schemes are similarly difficult, if not impossible, to detect, like self-preferencing, which occurs when a firm favours its own products in search. Coupled with the reality of the largest firms owning hundreds of private-label brands, it can be a powerful way to nudge customers toward purchasing the platform’s own products at the expense of competitors. Independent sellers on Amazon, for example, can end up spending large amounts of revenue on advertising to improve their search rankings. They must shell out big money to Amazon to even have the opportunity to compete. Firms don’t have to be dominant to engage in these kinds of tricks. Many companies are making these adjustments without any notice. However, given that the largest retailers and e-commerce platforms now command a majority of consumer spend, dominance and consumer manipulation often go hand in hand. Companies also manipulate the price of goods in ways that consumers may not realize. Today, the prices of most goods are not set by humans but by automatic processes—algorithms. The use of these systems and their terms are not disclosed to shoppers, although the aim is often to extract the highest possible price from them. Using intrusive personal data, sometimes acquired directly through interactions with consumers and more often bought by third-party data brokers, companies now know our intimate spending habits and can calculate our maximum willingness to pay. For example, research from Mozilla and Consumers International found that Tinder users could be charged up to thirty-one different prices for the same subscription service, and that older users were typically charged more. Stores from Staples to Target to grocers all employ this technique today. As our digital footprints continue to grow, uniform prices may be a thing of the past. Steve Burd, former CEO of Safeway, has said, “There’s going to come a point where our shelf pricing is pretty irrelevant because we can be so personalized in what we offer people.” Economists will say that this is simply an exercise in pricing optimization. When companies offer different prices based on consumer willingness to pay, it can enhance market efficiency. It is true that not all price discrimination is inherently anti competitive; it depends on context and impact. Discounted prices for seniors, students, and children, for example, are common and accepted. The key is discerning when pricing strategies cross the line between a savvy business practice and anti-competitive behaviour, a challenge that requires vigilant oversight and nuanced regulation. But online personalized pricing is a different beast. It requires the use of highly invasive data collection and personal identification techniques. This kind of sophisticated price calibration is happening more often, without any sort of consumer consent, disclosure, or labelling. Market power is a necessary precondition for personalized pricing. If consumers had multiple options for products and could find the same item more cheaply elsewhere without incurring high switching costs, personalized pricing would be less effective. In consolidated sectors, companies don’t need to court or maintain our trust anymore, because they aren’t actually competing for it. This disappointing reality was dubbed the “Golden Age of User Hostility” by technology journalist Charlie Warzel in The Atlantic. He referred to this new reality combining add-on fees and personalized pricing as a “game you can’t win” and characterized it as “pricing hell.” Junk fees are another now-ubiquitous price-related tactic. Unnecessary, hidden, and often illegal fees are added onto a bill. Junk fees mask themselves with a myriad seemingly believable aliases, including service fees, convenience fees, administrative fees, and other official-sounding terminology that lends credibility to ultimately bogus charges. At their core, unjustified junk fees are a form of “exploitative innovation,” a kind of lazy man’s innovation. When firms don’t have to compete, they are incentivized to develop new bogus fees and pricing tricks instead of improving their products. A report from the consultancy North Economics found that Canadians are overpaying bank fees by billions of dollars annually compared to consumers in the United Kingdom and Australia. The firm calculated that the big five Canadian banks earn $7.73 billion in “excess” annual profits from retail banking fees alone, equivalent to around $250 per Canadian. Fees for basic chequing accounts, non-sufficient funds, overdrafts, and using other banks’ ATMs were found to be dramatically higher than in peer countries. These kinds of unnecessary fees impact lower-income households in outsized ways and exacerbate affordability challenges. They’ve become normalized because our banks, long-time oligopolists, can mimic each other’s bogus fee structures without having to compete for customers’ business. These shifts and tricks by companies have forced us to become more vigilant and even defensive when shopping. Considered together, misleading marketing, counterfeit products, deceptive pricing architecture, and other tactics speak to the significant information asymmetry between consumers and companies. This power imbalance is made significantly worse by the absence of real competition. It takes traditional consumer vulnerability to a whole other level. When such tactics are noticed, businesses have occasionally been shamed by consumer protection groups, viral Reddit threads, or vigilant individuals with a platform. But these problems go well beyond the ability of a consumer to read every label in detail or verify the weight of a product at checkout. Consumers can’t be expected to police every market every day. Too much of the new economy relies on individuals to provide near-constant mini checks on corporate power. The ongoing erosion of trust between firms and purchasers is less about a false choice between free or regulated markets—it’s a question of how to turn manipulated markets into trustworthy ones. It shouldn’t be too much to expect markets to operate in fair, transparent, and reliable ways. We can turn that expectation into reality. ---- Excerpted from The Big Fix: How Companies Capture Markets and Harm Canadians. Copyright © 2024 Denise Hearn and Vass Bednar. Reprinted by permission of Sutherland House Books. Vass Bednar Vass Bednar is the executive director of McMaster University’s master of public policy in digital society and a senior fellow at the Centre for International Governance Innovation. Denise Hearn Denise Hearn is a resident senior fellow at the Columbia Center on Sustainable Investment at Columbia University.