The FTC and 17 States Sue Amazon for “Illegally Maintaining Monopoly Power”
Not unexpectedly, the Federal Trade Commission (FTC) and 17 attorneys general have sued Amazon claiming it is a monopoly and has engaged in “interlocking anticompetitive and unfair strategies to illegally maintain its monopoly power.” The FTC is being joined by Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, and Wisconsin in the lawsuit.
Amazon is accused on stopping rivals, preventing sellers from lowering their prices, degrading quality for shoppers, overcharging sellers, stifling innovation, and preventing rivals from competing against Amazon.
It’s not the size of Amazon that’s the issue, instead the suit focuses on actions that prevent competition on price, product selection, quality, and preventing rivals from attracting a critical mass of shoppers and sellers.
The FTC has stated the issue is in the two markets of Amazon, the soppers and the sellers. In a news conference, FTC chair Lina Kahn stated sellers are paying one of every $2 to Amazon which increases prices for shoppers.
From the release, tactics include:
- 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.
Also mentioned in the announcement are:
- 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% 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.
Amazon has gobbled up numerous companies in the “geek space,” most notably comiXology which has since been degraded in services and folded into the Amazon/Kindle system. It’s unknown what deals Amazon imposed on publishers about digital comic pricing.
The FTC and states are seeking a permanent injunction in federal court that prevents Amazon from engaging in these tactics.
Amazon’s senior vice president for global public policy stated in a statement posted on Amazon’s website:
The practices the FTC is challenging have helped to spur competition and innovation across the retail industry, and have produced greater selection, lower prices, and faster delivery speeds for Amazon customers and greater opportunity for the many businesses that sell in Amazon’s store.
This isn’t the first action under Khan’s leadership against the FTC. Amazon was sued earlier this year for how it automatically renewed customers’ Prime subscriptions, it has proposed Amazon pag $25 million for alleged improper storage of children’s data obtained through Alexa devices, and Amazon settled with the FTC for $5.8 million in May for allowing employees to view data obtained through Ring cameras.