News / 'Monopolistic' Amazon comes under fire in US antitrust lawsuit

© Dmitrii Melnikov

Is the writing on the wall for Amazon? According to the Federal Trade Commission (FTC), and the attorney generals in 17 US states, the etailer has a monopoly which it uses to harm its millions of customers.

In the lawsuit filed yesterday, the FTC and the states claim: “Amazon is a monopolist. It exploits its monopolies in ways that enrich Amazon, but harm its customers: both the tens of millions of American households who regularly shop on Amazon’s online superstore and the hundreds of thousands of businesses who rely on Amazon to reach them.”

The thorough 172-page document, much of which is redacted, claims Amazon takes about half of every dollar from a typical seller using its fulfilment service.

It added: “Amazon recognises that sellers find “it has become more difficult over time to be profitable on Amazon” – and, as one seller said: “We have nowhere else to go, and Amazon knows it.”

The lawsuit alleges that Amazon illegally “blocks competition, [and] stunts rivals’ growth”. It focuses particularly on Amazon’s alleged habit of preventing sellers from offering their goods elsewhere more cheaply, using “a set of anti-discounting tactics to prevent rivals from growing by offering lower prices, and it uses coercive tactics involving its order fulfilment”.

It adds: “Whether done contractually or algorithmically, Amazon requires sellers to keep prices off-Amazon as high or higher than prices on Amazon. Amazon uses not only trivial but a trick and an attempt to garner goodwill with policymakers amid increasing competition concerns.”

The FTC claims: “When Amazon detects elsewhere online a product that is cheaper than a seller’s offer for the same product on Amazon, Amazon punishes that seller. It does so to prevent rivals from gaining business by offering shoppers or sellers lower prices.”

Fulfillment by Amazon (FBA), which sellers must use if they want their products to be eligible for Prime, is also in the spotlight.

“When a seller uses FBA, Amazon charges the seller for storing their items and charges the seller a fee based on the dimensions and weight of the product when it is purchased. Amazon has increased the fulfilment fees it charges to sellers by approximately 30% in just two years, from 2020 to 2022. As explained … below, sellers have little choice but to use FBA.”

FBA – described as “a significant business cost” –  is one of four ways Amazon charges sellers fees: they must also pay a ‘selling fee’; a commission on the final price; and an advertising fee.

It said: “Plaintiffs bring this lawsuit despite Amazon’s extensive efforts to impede the government’s investigation and hide information about its internal operations….

“Amazon worsens quality and hikes prices for both shoppers and sellers, all without denting – and while in fact expanding – its dominance.”

But Amazon has come out fighting. Yesterday it released a statement, noting its cooperation with the FTC and then suggesting that the FTC has a “fundamental misunderstanding of retail”.

It said: “Unfortunately, it appears the current FTC is radically departing from that approach, filing a misguided lawsuit against Amazon that would, if successful, force Amazon to engage in practices that actually harm consumers and the many businesses that sell in our store — such as having to feature higher prices, offer slower or less-reliable Prime shipping and make Prime more expensive and less convenient.”

It justified its pricing tactics: “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…”

It added: “The FTC’s case alleges that our practice of only highlighting competitively priced offers and our practice of matching low prices offered by other retailers somehow lead to higher prices. But that’s not how competition works. The FTC has it backwards…”

It also pointed out that that FBA “was made possible by years of investment to build a logistics network that could reliably get packages to customers quickly and handle customer service issues when they arose…

“Many [sellers] choose FBA because Amazon takes care of so much of the heavy lifting of logistics (eg, storage, picking, packing, shipping, etc) while also offering fulfilment fees that are an average of 30% less expensive than standard shipping methods offered by other major third-party logistics providers, and an average of 70% less expensive than comparable two-day shipping alternatives.”

It concluded: “We fundamentally disagree with the FTC’s allegations – which are in many cases wrong or misleading — and with their over-reaching and misguided approach to antitrust, which would harm consumers, hurt independent businesses and upend long-standing and well-considered doctrines. We will contest this lawsuit.”

The case continues.