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Amazon might be in trouble. The U.S. Federal Trade Commission (FTC) is likely on the verge of a massive lawsuit against the digital marketplace giant.
Historically, Amazon has had relatively good success in avoiding large-scale antitrust liability. The company has managed to keep its blatantly anticompetitive behavior low key, and its benefits to consumers have largely shielded it from serious antitrust scrutiny. Nevertheless, the FTC may have found a way to target Amazon that could potentially break up the company, if they can build on what has worked in the past and learn from what has not.
The FTC’s suit will likely contain multiple claims against Amazon. These could include:
If the lawsuit materializes, it would be the fourth that the FTC has filed against Amazon with Lina Kahn as the agency’s chair. So far, none of these suits have been successful. Before being nominated to the position by President Joe Biden, Kahn rose to prominence through a journal article that she wrote about Amazon. In it, she argued that the current American antitrust system is inadequate to address the anticompetitive practices of Amazon (see Ceco’s piece: Amazon according to Lina Kahn). Nevertheless, this latest suit will have to do its best to succeed in the current antitrust regime.
An FTC victory would be a departure from the general success that Amazon has had in avoiding serious antitrust liability.
At first glance, one might argue that the sheer size of Amazon should be reason enough to break it up. However, just because a company is big does not mean that it is automatically violating antitrust law. U.S. regulators must pinpoint anticompetitive behaviors that result in harm to consumers. To measure this, they focus on things like increased prices, reduced quality, or reduced customer choice.
That is where antitrust regulators run into problems. Rather than being harmful to the consumer, the existence of Amazon has been mostly positive for him. The site’s prices are low, its fast delivery service is extremely convenient, and customers often have thousands of options to choose from when browsing for products.
While Amazon has been great for consumers overall, its massive size has not left much room for other smaller marketplace competitors and many other types of small businesses. Nevertheless, the focus of U.S. antitrust law is not on the protection of small businesses, but rather on the effect that certain behaviors have on consumers. This contrasts with EU antitrust law, which does prioritize the development of small businesses (see CeCo’s piece: New position of the European Commission regarding exclusionary abuses).
The current insufficiency of U.S. antitrust law to address Amazon’s overall size has not prevented certain U.S. states from targeting the company, however. For example, in 2021, the Washington, D.C. Attorney General filed a lawsuit against Amazon, in which he argued that Amazon used unfair pricing policies against merchants (see CeCo’s piece: It’s Amazon’s turn in the U.S.). More specifically, the Attorney General claimed that Amazon’s agreements required these third-party sellers to offer the lowest prices for their products on Amazon, and forbade them from offering lower prices on any other sites (i.e., price-parity clause).
Amazon charged high fees for the use of its platform, the cost of which was incorporated into the ultimate price of the merchant’s products. However, even if other platforms did not have such high fees, the merchants nevertheless had to also raise the prices of these products to abide by their agreement with Amazon. The D.C. attorney general argued that this imposed an artificially high price floor for these products, and resulted in higher costs for consumers, the stifling of price competition, and the deprivation of choice. The court dismissed the case, but the city has appealed that decision.
Not every antitrust attempt against Amazon has failed, however. While none of the following cases are as large as the probable FTC case, they indicate possible weaknesses in Amazon’s antitrust resistance.
California filed a similar suit to D.C.’s in 2022, which the judge has allowed to proceed. It outlined the ways that Amazon would punish sellers that did not comply with pricing agreements. Punishments included a complete cutoff of the merchant or the denial of access to Amazon’s “buy box”. The buy box is a highly visible section on the right side of a product detail page where customers can add a product to their cart. Merchants did not want to lose access to this important sales tool, which incentivized them to comply with Amazon’s pricing requests.
An even more successful action against Amazon was initiated by Washington State last year. As a result of its investigation and lawsuit, Amazon agreed to stop its “Sold by Amazon” program. Washington argued that the program violated antitrust laws because it resulted in price fixing. It also alleged that the “Sold by Amazon” (SBA) program was a way for Amazon to avoid having to compete with third-parties on its site.
Amazon’s marketplace is a forum for both its own retail branch and for third-party merchants. Because of this, Amazon makes products that must directly compete with third-party sellers that they have given a forum to. To avoid having to compete in this way, the company reached out to hundreds of merchants and got them to agree to prices that Amazon wanted. In exchange, Amazon agreed to pay the seller a minimum payment for the product. Any amount of money that the product made beyond this amount was split between Amazon and the seller.
This allowed Amazon to set the prices of these products at whatever number it wanted. By setting the prices higher, customers would flock to Amazon’s products rather than the third parties’. Washington alleged that this program kept the prices of certain products artificially high and restrained price competition. The state’s investigation made Amazon stop the program nationwide and pay 2.25 million dollars to the Washington Attorney General’s office.
Outside the U.S., Amazon faced a formidable challenge to its practices from the EU in 2022 (see CeCo’s piece: The agreement between the European Commission and Amazon). In this case, the investigations also resulted in Amazon changing some of its practices. The two investigations addressed different behaviors that the EU Commission suspected violated antitrust laws. The first dealt with the way that Amazon relied on sellers’ non-public business data to calibrate its retail decisions. As aforementioned, Amazon’s role as a marketplace puts it in a peculiar position: it competes with the very sellers that it provides a platform for. However, this position also came with certain perks. Because Amazon collected information about these third parties’ sales, income, prices, and deliveries as a condition of using the site, the company was able to turn around and use this data for its own business decisions. The EU Commission claimed that this practice both distorted fair competition and prevented effective competition.
The second investigation dealt with the criteria set by Amazon for selecting featured merchants to be in its buy box and Prime program. The EU alleged that Amazon would give preferential treatment to its own Retail branch or to sellers who used the company’s own delivery services.
In response to these investigations, Amazon agreed to not use seller data for its own retail operations and to grant non-discriminatory access to Buy Box and Prime. If Amazon breaches these commitments, they could face a fine of up to 10 percent of their total annual turnover, which could amount to a fine of billions of dollars. A similar solution could take place in a UK investigation (see CeCo’s piece: Amazon in the UK – Again with self-preferencing issues).
The upcoming lawsuit by the FTC against Amazon, if successful, could rise above past battles against the company and result in some serious damage. However, the claims that the FTC is likely going to make are not certain to hold up, as illustrated by past failed attempts. The agency will likely draw on what worked and what did not for their own lawsuit.
Regarding Amazon’s blocking of lower prices on other websites, there is a good chance that the FTC could show that this behavior violates antitrust law. Even though a similar claim was thrown out in Washington, D.C., another such case is proceeding in California. Furthermore, this claim gets at the heart of U.S. antitrust law: consumer protection. If the FTC can show that these pricing agreements have resulted in higher prices for consumers, then they are well on their way to proving a violation of antitrust law.
Amazon’s forcing of merchants to use its logistics and advertising services is less likely to be a problem for courts. While the EU was successful in making Amazon cease similar type of behavior, their antitrust laws are much tougher on such discriminatory practices. In the U.S. however, the FTC would have to prove that the only reason for Amazon to act in such a discriminatory manner was to crush competition. In response, Amazon will likely be able to come up with a legitimate business reason for these practices, such as efficiency and convenience for customers.
Since its inception in 1994, Amazon has come out of most antitrust challenges relatively unscathed. This is due to the general priorities of U.S. antitrust law, which focuses heavily on consumer welfare. Because Amazon has resulted in things like lower prices and greater choice and convenience for consumers, antitrust authorities have had a hard time pinpointing problems with Amazon’s size. However, some recent cases have shown that there are chinks in Amazon’s armor. If the FTC wishes to be successful in its upcoming suit against Amazon, it will have to figure out how to exploit these weaknesses. If it can, the FTC might be able to land a significant blow to one of the U.S.’s largest companies.
