The Federal Trade Commission (“FTC”) and 17 state attorneys general filed their widely-anticipated lawsuit against Amazon.com, Inc. on Tuesday, alleging that the online retail and technology company is “a monopolist that uses a set of interlocking anticompetitive and unfair strategies to illegally maintain its monopoly power.” In the 172-page complaint, the FTC and its state partners claim that Amazon’s actions “allow it to stop rivals and sellers from lowering prices, degrade quality for shoppers, overcharge sellers, stifle innovation, and prevent rivals from fairly competing against Amazon.”
One of the most striking cases to be initiated under the watch of FTC Chairwoman Lina Khan, a long-time Amazon critic (her 2017 note in the Yale Law Journal, entitled, “Amazon’s Antitrust Paradox,” focused on the “anticompetitive aspects of Amazon’s structure and conduct”), the FTC claims that “by stifling competition on price, product selection, quality, and by preventing its current or future rivals from attracting a critical mass of shoppers and sellers, Amazon ensures that no current or future rival can threaten its dominance.” The complaint continues, “Amazon’s far-reaching schemes impact hundreds of billions of dollars in retail sales every year, touch hundreds of thousands of products sold by businesses big and small and affect over a hundred million shoppers.”
At a high-level, the FTC argues that “Amazon’s anticompetitive conduct occurs in two markets – the online superstore market that serves shoppers and the market for online marketplace services purchased by sellers,” with tactics including …
– Anti-discounting measures that punish sellers and deter other online retailers from offering prices lower than Amazon, keeping prices higher for products across the internet. For example, if Amazon discovers that a seller is offering lower-priced goods elsewhere, Amazon can bury discounting sellers so far down in Amazon’s search results that they become effectively invisible.
– Conditioning sellers’ ability to obtain “Prime” eligibility for their products—a virtual necessity for doing business on Amazon—on sellers using Amazon’s costly fulfillment service, which has made it substantially more expensive for sellers on Amazon to also offer their products on other platforms. This unlawful coercion has in turn limited competitors’ ability to effectively compete against Amazon.
Moreover, “Amazon’s illegal, exclusionary conduct makes it impossible for competitors to gain a foothold. With its amassed power across both the online superstore market and online marketplace services market, Amazon extracts enormous monopoly rents from everyone within its reach,” which includes …
– Degrading the customer experience by replacing relevant, organic search results with paid advertisements – and deliberately increasing junk ads that worsen search quality and frustrate both shoppers seeking products and sellers who are promised a return on their advertising purchase.
– Biasing Amazon’s search results to preference Amazon’s own products over ones that Amazon knows are of better quality.
– Charging costly fees on the hundreds of thousands of sellers that currently have no choice but to rely on Amazon to stay in business. These fees range from a monthly fee sellers must pay for each item sold, to advertising fees that have become virtually necessary for sellers to do business. Combined, all of these fees force many sellers to pay close to 50 percent of their total revenues to Amazon. These fees harm not only sellers but also shoppers, who pay increased prices for thousands of products sold on or off Amazon.
TLDR: “Amazon’s unfair and monopolistic conduct has broken the competitive process. Amazon’s anticompetitive conduct closes off each major avenue of competition – including price, product selection, quality, and innovation – in both relevant markets,” and harms consumers “by depriving them of the benefits of open, fair competition and allowing Amazon to exploit its monopoly power without facing the competitive checks of a free enterprise system,” the FTC claims in the newly-filed lawsuit.
With the foregoing in mind, the consumer protection regulator and attorneys for Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, and Wisconsin assert that Amazon is engaging in unfair methods of competition (under 15 U.S.C. § 45(a)) by maintaining a monopoly of the online superstore market and the online marketplace services market, and monopoly maintenance of those markets (under 15 U.S.C. § 2), as well as violating states’ anti-monopolization, antitrust, and/or unfair trade practices and consumer protection laws. They are seeking a permanent injunction in federal court that would prohibit Amazon from engaging in its unlawful conduct and pry loose Amazon’s monopolistic control to restore competition.
Amazon said in a statement in the wake of the filing, “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 designed to do. The lawsuit filed by the FTC today is wrong on the facts and the law, and we look forward to making that case in court.”
THE POTENTIAL IMPACT: Reflecting on the potential impact, John Kirkwood, an antitrust professor at Seattle University School of Law, says that it is “very unlikely” that the FTC’s case will pave the way to Amazon being “broken up, [as] that rarely happens in anti-trust law.” And since the FTC “does not have the authority to impose fines, the most likely result here is an order by the court to Amazon to stop the challenged practices.” While that “may have some impact on Amazon’s business,” Kirkwood says that “it is unlikely to be dramatic.”
Against that background, some of the impact may come in the form of concessions from Amazon. Most immediately, ahead of the filing, Amazon was busy cutting back on an array of its private label brands. The move to eliminate 27 of its 30 in house-label clothing brands (leaving just Amazon Essentials, Amazon Collection and Amazon Aware) was construed as a potential effort to deflect some of the rising regulator scrutiny. The Wall Street Journal reported in August, for example, that Amazon had previously “discussed offering to exit from the business as a concession to the FTC if the agency followed through with its lawsuit.”
Amazon characterized the move differently, with Amazon’s VP of Private Brands Matt Teddy saying last month, “We always make decisions based on what our customers want, and we’ve learned that customers seek out our biggest brands – like Amazon Basics and Amazon Essentials – for great value with high quality products at great price points.”
The Journal also reported that Amazon had “cut back on giving its private-label products a boost on search results pages in special placements.”
The case is FTC, et al., v. Amazon.com, Inc., 2:23-cv-01495 (W.D. Wash.).
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