It’s official: the Federal Trade Commission (FTC) filed an antitrust lawsuit against Amazon on Tuesday along with the Attorneys General of 17 states, accusing it of overcharging sellers, preventing rivals from fairly competing against Amazon, and engaging in actions that allowed it to stop rivals and sellers from lowering prices. Amazon immediately disputed the allegations.
Among the callouts from the FTC were certain alleged Amazon tactics impacting sellers:
- 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’ 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.
The FTC also alleged that Amazon practices degrade the customer experience by replacing relevant, organic search results with paid advertisements, alleging it frustrates both shoppers and sellers who are promised a return on their advertising purchase.
And it alleged that Amazon’s search results were biased to prefer Amazon’s own products over ones that Amazon knows are of better quality.
The FTC also alleged in Tuesday’s press release that Amazon charges costly fees on sellers who: “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,” it alleged – “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.”
The FTC is looking to permanently enjoin Amazon from engaging in the alleged conduct and also called for “structural relief” in the lawsuit to prevent any recurrence of Amazon’s alleged violations of the law.
The government didn’t provide details on how it thought the Court should provide structural relief, but it generally means it’s calling for a breakup of the company.
In reaction to today’s news of the FTC lawsuit, the Institute for Local Self Reliance advocated for the breakup of Amazon up into multiple companies. “Separating Amazon’s third-party marketplace from its own retail division, and spinning off its logistics operation, to form several stand-alone companies would remove Amazon’s ability to exploit the interplay between its major divisions to impede competition.”
“As separate companies,” it said, “each of Amazon’s divisions would have to compete on the merits. Its package delivery operation would need to vie with other carriers, rather than simply strong-arming sellers. Its retail spin-off would no longer be able to mine sellers’ data to inform its own products or tax their sales to subsidize its own operations. And its marketplace platform would face much needed competition from other shopping sites offering lower fees and better service to attract both sellers and consumers.”
But Amazon clearly disagrees with the call to break up its businesses into separate companies. It provided us with the following statement from David Zapolsky, Amazon Senior Vice President of Global Public Policy and General Counsel:
“Today’s suit makes clear the FTC’s focus has radically departed from its mission of protecting consumers and competition. 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. 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.”
And in a post on the Amazon site, Zapolsky said, “Just like any store owner who wouldn’t want to promote a bad deal to their customers, we don’t highlight or promote offers that are not competitively priced.”
He said the FTC’s allegation that it forces sellers to use optional services such as FBA and its advertising services was not true. “Sellers have choices, and many succeed in our store using other logistics services or choosing not to advertise with us. We also enable sellers to use the trusted Prime badge when other logistics services are able to meet our Prime customers’ high expectations for fast, reliable delivery. When sellers have multiple options and can choose the right fit for them, the result is increased competition for those services, better prices, and a better experience for both sellers and the customers we all serve.”
While many sellers bemoan certain Amazon policies, it’s not clear if they’ve given much thought to a breakup or how it might impact them.
To get a sense of how breaking up a large marketplace could potentially impact sellers, recall in 2015, when eBay broke itself up (after pressure from activist investor Carl Icahn). By 2019, eBay had replaced PayPal as its payment processing system with its own Managed Payments. (eBay still allows PayPal as a payment method, but shopper funds go to eBay, not the seller.)
It’s time to start imagining the ramifications of a breakup – would Amazon FBA fulfillment continue to provide value – and would that result in lower or higher fulfillment costs for sellers? Would requiring Amazon to separate its retail business make it easier for your products to be seen?
Quote: “Would a Forced Breakup of Amazon Help or Harm Sellers?”
So, after reading this article, does it now Help or Harm Sellers?