The terms of the new Amazon Appstore have given pause to a few developers, but now the International Game Developers Association is telling Android game devs to be careful about signing up with Amazon (AMZN) to sell their games.

The IGDA posted the open letter, titled “Important Advisory About Amazon Appstore’s Distribution Terms,” on its website. In the letter, the IGDA warns that Amazon has inserted language into the terms that could be harmful to game developers, allowing Amazon to reap the benefits of app sales while leaving the people who actually made those apps out in the cold.

Here’s a quote from the letter that distills the major point:

“In brief: Amazon reserves the right to control the price of your games, as well as the right to pay you “the greater of 70% of the purchase price or 20% of the List Price.” While many other retailers, both physical and digital, also exert control over the price of products in their markets, we are not aware of any other retailer having a formal policy of paying a supplier just 20% of the supplier’s minimum list price without the supplier’s permission.” (Author’s emphasis.)

Apart from Amazon setting a price for developers’ games and being free to ignore prices set by developers (the “list price”), the Appstore terms also require that developers not raise their app list prices above what that app goes for in other markets. In other words, developers can’t raise their list prices to counteract any discounts Amazon wants to offer on their apps, and if an app gets discounted in Google’s (GOOG) Android Market or the iTunes App Store, say, the price of that app must be permanently lowered in the Amazon Appstore also. Like Apple’s App Store subscription policy, Amazon is dictating that the lowest prices always be found in its store.

The IGDA goes on to outline a few scenarios in which Amazon can stick it to developers. Huge discounts on tons of apps, like the top 100 games, was one example — in which Amazon could hack the price of apps by a huge margin and pay the developers of those apps only a few pennies for their product, while Amazon makes up the difference in volume and with exposure for its store.

Other examples point out that Amazon’s terms leave developers the choice between abandoning the Appstore or never offering discounts in other markets; slicing an app’s price to free when it has a niche market, and causing a huge chunk of that market’s players to grab the game without paying for it; or cut the price of a hit game when it’s selling well in other markets to draw customers to Amazon, causing a big loss for the developer.

Amazon is exerting a whole lot of control over its Appstore — in some extreme ways that even Apple (AAPL) hasn’t — and the IGDA is right to warn developers to watch their steps. If app developers can’t reliably make money using Amazon’s store, it can stifle their innovation and the ability to further grow the industry, and that’s like Amazon shooting itself, and everyone else, customers included, in the foot.