Consumers rely on Amazon. So why did the FTC file an antitrust suit?

By James On Sep 27, 2023

U.S. regulators and 17 states have sued Amazon over allegations that the e-commerce giant abuses its position in the marketplace to inflate prices on and off its platform, overcharge sellers and stifle competition.

The lawsuit, filed Tuesday in federal court in Amazon’s home state of Washington, is the culmination of a yearslong investigation into the company’s operations and one of the most significant legal challenges it has faced in its nearly 30-year history.

The Federal Trade Commission and states that joined the lawsuit allege that Amazon is violating federal and state antitrust laws. They are asking the court to issue a permanent injunction that they say would prohibit Amazon from engaging in its unlawful conduct and relax its “monopolistic controls to restore competition.”

The complaint accuses the company of engaging in anticompetitive practices through measures that prevent sellers from offering lower prices for products on non-Amazon sites, an argument that mirrors allegations filed last year in a separate lawsuit by the state of California.

According to the lawsuit, Amazon buries listings that are offered at lower prices on other sites. At the same time, it also charges sellers high fees, forcing sellers to increase their prices on the platform and other e-commerce sites to keep their products competitive on Amazon.

“The complaint contains detailed allegations noting how Amazon is now exploiting its monopolistic power to enrich itself while raising prices and cutting service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them,” FTC Chair Lina Khan said in a prepared statement.

Seattle-based Amazon.com Inc. said the FTC “is wrong on the facts and the law” and has deviated from its role to protect consumers and competition.

“If the FTC gets its way, the result would be fewer products to choose from, higher prices, slower deliveries for consumers, and reduced options for small businesses – the opposite of what antitrust law is intended to do,” says Amazon General Counsel David Zapolsky. said in a prepared statement.

The lawsuit also accuses Amazon of worsening the customer experience by replacing relevant search results with paid advertisements, favoring its own brands over other products it knows are of better quality, and charging high fees forcing sellers to pay almost half of their total revenue to customers. Amazon. According to the anti-monopoly organization Institute for Local Self-Reliance, discounts sellers give to Amazon on their revenues have increased from 35% in 2020 and 19% in 2014.

The lawsuit also says Amazon forces sellers to use its logistics service, Fulfillment by Amazon, to make their products eligible for Amazon Prime, even though many of them would prefer to use alternative fulfillment services to get orders to customers.

Some estimates show that Amazon has about 40% of the e-commerce market. The majority of sales on the platform are facilitated by independent sellers, consisting of small and medium-sized businesses and individuals. In exchange for the access it provides to its platform, Amazon rakes in billions through referral fees and other services like advertising, which make products sold by sellers more visible on the platform.

The vast majority of third-party sellers also use the company’s fulfillment service to stock inventory and ship items to customers. Amazon has consistently raised fees for those who rely on the program and more recently imposed (and then eliminated) a fee on some who don’t, a move rejected by the company’s critics. Last quarter, Amazon reported $32.3 billion in revenue from third-party services.

Consumer advocacy groups cheered the lawsuit, while an industry group said many major retail companies have policies that mirror Amazon’s.

There has been speculation that the agency would seek a forced breakup of the retail giant, which is also dominant in cloud computing and has a growing presence in other sectors such as groceries and healthcare. In a briefing with reporters, Ms Khan dodged whether that would happen.

“At this stage the focus is more on accountability,” she said.

Amazon has long faced accusations of undercutting companies that sell on its platform by reviewing seller data and creating its own competing products that it then promotes on its site. In August, the company said it would eliminate some internal brands that weren’t resonating with customers and relaunch some items under existing brands such as Amazon Basics and Amazon Essentials. Booksellers and authors have also urged the Justice Department to investigate what they call Amazon’s “monopoly power in the marketplace for books and ideas.”

If successful, a lawsuit could be a major boost for the FTC’s Ms. Khan, a Big Tech critic who rose to fame as a Yale law student in 2017 for her scholarly work “Amazon’s Antitrust Paradox.” In 2021, Amazon had tried to have her cleared from agency investigations against the company over her past criticism.

Under Ms. Khan’s watch, the FTC has aggressively tried to blunt the influence of Big Tech, but has been unsuccessful recently in some of its most high-profile cases, including its attempt to block Microsoft’s acquisition of the video game maker Activision Block Blizzard and Meta’s takeover of the computer. virtual reality startup Within Unlimited. The agency is now in the middle of a lengthy lawsuit against Facebook parent company Meta, which the company claims is guilty of monopolistic behavior. The Justice Department is also challenging Google’s market power in court.