- Amazon faces the first set of antitrust charges from the US federal government after the Federal Trade Commission filed a long-awaited lawsuit against the e-commerce and cloud giant.
- The lawsuit is a major milestone for FTC Chair Lena Khan, who rose to prominence in her 2017 memo in the Yale Law Journal titled “The Amazon Antitrust Paradox.”
- It is also the culmination of several years of pressure on federal agencies to address what some competitors, vendors and lawmakers view as anticompetitive practices.
Amazon CEO Andy Jassy speaks during the New York Times DealBook Summit in the Appeal Room at Jazz At Lincoln Center on November 30, 2022 in New York City.
Michael M. Santiago | Getty Images
The Federal Trade Commission has filed its long-awaited antitrust lawsuit against Amazon.
In a sweeping complaint unsealed Tuesday, the Federal Trade Commission and attorneys general from 17 states accused Amazon of exercising its “monopoly power” to inflate prices, reduce quality for shoppers and illegally exclude competitors, thus undermining competition.
The agency developed a two-pronged strategy, through which Amazon would “illegally maintain” its monopoly power. The FTC said it pointed to so-called anti-discounting measures the company uses to punish sellers and deter other online retailers from offering lower, more competitive prices than Amazon, which translates into keeping prices higher for online products.
The FTC said Amazon “effectively requires” that sellers use “expensive” fulfillment services in order to earn the vaunted Prime badge for their products, which in turn increases the cost of doing business on the platform.
The FTC added that these tactics stifled innovation, weakened the shopping experience on Amazon, and forced sellers to pay exorbitant fees to market their goods on the site, while they were faced with no other choice “but to rely on Amazon to stay in business.”
David Zapolsky, Amazon’s general counsel and senior vice president of global public policy, said in a statement that the FTC’s complaint is “wrong on the facts and the law.”
“The practices the FTC is challenging have helped spur competition and innovation across the retail industry, and have produced greater selection, lower prices, faster delivery speeds for Amazon customers and greater opportunity for many businesses selling in the Amazon store,” Zapolsky said in a statement. “If the FTC gets its way, the result will be fewer products to choose from, higher prices, slower deliveries to consumers, and fewer choices for small businesses — the opposite of what antitrust law aims to do.”
The lawsuit is a major milestone for FTC Chair Lena Khan, who came to prominence in her 2017 memo in the Yale Law Journal, “Amazon’s antitrust paradoxKhan argued in the article that the prominent antitrust framework at the time failed to understand the true extent of Amazon’s dominance and the potential harm to competition. Through her work at the FTC, Khan has sought to reset this framework and push the boundaries of antitrust. Law through risky legal battles.
Lina Khan, Chair of the Federal Trade Commission
Courtesy: Federal Trade Commission
Amazon has requested that Khan recuse himself from antitrust investigations into its business, arguing that her past writings and criticisms showed that it had prejudged the outcomes of such investigations.
The charges are the culmination of several years of pressure on federal agencies to address what some competitors, vendors and lawmakers saw as anticompetitive practices. Amazon was one of four large technology companies investigated by the House Judiciary Committee’s antitrust subcommittee, which found that it had monopoly power over most third-party sellers and many suppliers. Majority Democratic staffers at the time claimed that Amazon strengthened its “competitive moats” by acquiring rival sites like Diapers.com and Zappos.
At the time, an Amazon spokesperson said in a statement that “large companies are not dominant by definition, and the assumption that success can only be the result of anti-competitive behavior is simply false.”
Amazon, founded by Jeff Bezos in 1994, has transformed from an online bookseller into a retail, advertising and cloud computing giant with a staggering market value of about $1.4 trillion. The company has sought to expand its dominance by entering sectors such as healthcare, streaming and grocery, acquiring primary care provider One Medical, legendary film and television studio MGM, and supermarket chain Whole Foods.
These moves have attracted intense regulatory scrutiny. The House subcommittee report also accused Amazon of abusing its position in online retail to harm third-party merchants who rely on the platform to sell goods, and alleged that it used “strong-arm tactics” to bully retail partners. The FTC is also reviewing Amazon’s planned $1.7 billion acquisition of Roomba maker iRobot for antitrust reasons. Amazon recently paid nearly $30 million to settle two lawsuits filed by the Federal Trade Commission over its Ring Doorbell and Alexa units. The agency in June pursued a lawsuit accusing Amazon of tricking users into subscribing to Prime, while making it difficult for them to cancel.
Amazon’s marketplace has become the centerpiece of its e-commerce business since its launch in 2000. The company has already expanded beyond its origins as a bookseller into offering things like CDs and videos. But once it opened its doors to third-party sellers, it increased the number and variety of products for sale on its website, earning it the nickname “the everything store.”
The third-party marketplace has given Amazon access to a higher-margin business than just selling books. It also increased the fees it charges sellers for doing business on its site, running ads, and using delivery and fulfillment services. In the first half of 2023, the company collected a 45% rebate from every sale made by U.S. sellers, up from 19% in 2014, according to the nonprofit Institute for Domestic Self-Reliance. Sales from outside vendors now make up 60% of the company’s total units sold It was recently revealed.
This story is evolving. Check back for updates.
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