(Image via Nathan Denette / Canadian Press from cbc.ca)
Staff Writer: Jesse Magnifico
Email: jmagnifico@umassd.edu
For the second time this year, the Federal Trade Commission (FTC) is suing Amazon, this time for potentially breaking antitrust law.
According to FTC Chair Lina Khan, “Amazon is a monopolist, and it is exploiting its monopolies in ways that leave shoppers and sellers paying more for worse service.”
In a press release on September 26th, 2023, the FTC and seventeen General Attorneys (including Massachusetts) announced in a 172-page complaint that they are bringing the e-commerce giant to court because Amazon “stop[s] rivals and sellers from lowering prices, degrade[s] quality for shoppers, overcharge[s] sellers, stifle[s] innthe 172-page complaintovation, and prevent[s] rivals from fairly competing against Amazon.”
Such practices unfairly inflate prices for both sellers and consumers.
What was once a book-selling company in the late 90s, Amazon utilized the growth of the Internet and the World Wide Web to drastically transform into a global business working in tandem with third-party sellers. From books to clothing, furniture, groceries, healthcare, filmmaking, and gaming, the company offers hundreds of its own products across many business disciplines and sells millions more from third-party companies that are fulfilled (distributed) by Amazon.
According to Statista, Amazon held nearly 40% of the US e-commerce market share in June 2022, over six times more than Walmart, which sat in second place, holding a whopping 6.3%.
Amazon’s enormous presence today at a value of $1.3 trillion with 1.4 million employees is concerning to the FTC not because of its massive size but because of the alleged illegal anti-competitive practices that keep Amazon at the head of the game while hurting customers and sellers through “exclusionary conduct.”
Although Khan has stated the FTC does not wish to break up Amazon, CNN notes the allegation has the potential for “structural relief,” which will essentially do just that.
The FTC wants Amazon to offer fair affordability and competition across sellers and consumers.
In the FTC’s and states’ complaint, they claim Amazon deliberately discourages discounting below Amazon’s prices as a way to keep prices higher elsewhere, squashing competitors inside and outside of Amazon. In a sense, the company is setting a price ceiling on products, punishing merchants for selling above or below, especially if the seller has the same product listed outside of Amazon for less.
According to the FTC, Amazon prioritizes its own products/services while preventing third-party merchants from selling at lower rates than Amazon. Those who sell below Amazon’s prices are buried far down the search results. Plus, sellers who do not opt to fulfill their products through Amazon via “Prime” shipping are punished by paying higher prices.
Prime is expensive: “Amazon has hiked so steeply the fees it charges sellers that it now reportedly takes close to half of every dollar from the typical seller that uses Amazon’s fulfillment service,” states the fifth page of the complaint.
The FTC also brings the issues of inconvenient advertisements, Amazon preferencing its own products at the top of search results even if they know others “are of better quality,” and leading sellers to pay fees for “each item sold” and “advertising fees” that “force many sellers to pay close to 50% of their total revenues to Amazon.”
The latter claim not only deters sellers from competition but also the millions of shoppers who will succumb to“pay increased prices” to make up for the merchants who struggle in Amazon’s online retail market monopoly.
Amazon’s monopolistic tendencies of forcing Prime shipping/eligibility, dissatisfactory logistic services, and deterring competition from both sellers on Amazon.com and other online retailers are highlighted in the court order.
On the same day, Amazon rebutted the allegations in their own statement.
Senior Vice President of Global Public Policy & General Counsel David Zapolsky stated, “We respect the role the FTC has historically played in protecting consumers and promoting competition. Unfortunately, it appears the current FTC is radically departing from that approach.”
He continues to claim that if the FTC wins the lawsuit, Amazon would have to engage in practices that would negatively affect shoppers and sellers — worse than what the FTC is claiming Amazon does, which Zapolsky defends the company does not engage in.
Changing Amazon’s current tactics to reflect the lawful business practices the Federal Trade Commission seeks would slow down the company’s shipping speeds, reduce the variety and availability of products, and raise Prime Membership subscription and eligibility/fulfillment prices.
Zapolsky clarifies that Amazon is not performing the monopolistic behaviors the court order alleges.
He explains Amazon tries “to match other retailers’ low prices — online and offline” and that the company assists sellers to be “competitively priced.” Same or similar products are not disproportionately shown on search results; “we listed those offers on the same product page.”
He also defends that Amazon Fulfillment costs “30% less than standard shipping methods,” ultimately saving merchants and customers money down the line.
Looking Forward
This is not the first time the Federal Trade Commission or, frankly, any entity has sued Amazon.
In May/June of this year, Amazon had to pay more than $30 million to settle for failure to delete collected data of children’s conversations with Alexa as well as Ring camera privacy concerns.
In March 2022, Amazon was sued by California for not reimbursing workers during the COVID-19 pandemic, and in May 2019, several employees sued the company for discriminatory acts.
Amazon has its fair set of problems, but calling it a monopoly is a striking claim that the Federal Trade Commission won’t back down from.
It seems that the recent FTC, specifically current FTC Chair Lina Khan, has long exhibited strong opposition toward Amazon and big tech companies (i.e., Google, Meta, Microsoft).
At 29 years old, Khan published “Amazon’s Antitrust Paradox” in 2017 for the Yale Law Journal, calling Amazon anticompetitive and yearning for structural relief. And in a 449-page report titled “Investigation of Competition in Digital Markets,” similar patterns of thought arise from Khan’s writing in the collaborative piece.
Amazon appears concerned about Khan’s potential impartiality toward big tech businesses, given her previous works. They have not requested a recusal yet, but it is likely, considering Amazon questioned her authority two years ago.
This article is subject to updates.