Amazon’s Antitrust Accusations
The Federal Trade Commission (“FTC”), 18 state attorney generals, and Puerto Rico have filed a complaint against Amazon in the Western District of Washington, claiming that Amazon holds a monopoly in the e-commerce business and engages in anti-competitive conduct.
Photo: Courtesy of Lex Villena
Federal Trade Commission et. al. v. Amazon.com, Inc., an ongoing case filed in 2023, could change the landscape of the e-commerce business. The Federal Trade Commission (“FTC”), 18 state attorney generals, and Puerto Rico have filed a complaint against Amazon in the Western District of Washington, claiming that Amazon holds a monopoly in the e-commerce business and engages in anti-competitive conduct. Plaintiffs allege that Amazon’s anti-competitive practices violate both the Sherman Act and the FTC Act.
Claims Against Amazon
The FTC Act prevents unfair competition in the U.S. marketplace, providing a process for consumers to receive monetary damages for such practices, as well as creating the ability of the FTC to deem certain practices deceptive. Multiple claims in the Plaintiffs’ complaint allege violations of the FTC Act. The Plaintiffs claim that Amazon charges high prices for products but provides low-quality services to third-party sellers. The complaint details that Amazon passes charges to sellers, such as selling fees, referral fees, fulfillment fees, and advertising fees. Advertising fees are not mandatory for sellers, but advertised products are 46 times more likely to be viewed than products that are not advertised. This skewed advertising forces sellers to pay high advertising prices to have their products seen by consumers and is used by the FTC as direct evidence that Amazon has violated the FTC Act by encouraging unfair competition.
Along with using advertising fees as leverage for the Amazon algorithm, an Amazon executive reported that Amazon manipulated its algorithm to hide customer reviews on competing products and, in turn, bolster its own products. The complaint alleges that Amazon would put a “badge” next to certain items that were Amazon products to make it seem as though the products were a popular choice among consumers. The FTC uses this as an additional example of Amazon’s anti-competitive practices.
Another significant claim in the complaint is that rival sellers who do not sell their products on Amazon cannot compete with the low prices Amazon offers for similar products. This is a result of Amazon participating in “anti-discounting conduct,” where the algorithm scans the internet for lower prices on certain items and then matches or lowers the price of its own products. This tactic effectively reduces sales of sellers in other marketplaces and discourages sellers from leaving Amazon.
These claims provide just a few examples of the monopolistic practices the plaintiffs allege in the complaint. Ultimately, the FTC’s goal is to have Amazon deemed a monopoly and use the Sherman Act to limit its marketplace superiority.
The Sherman Act, enacted in 1890, was the first legislation passed in the United States that prohibited monopolies. The federal government originally enacted the Sherman Act to prohibit large companies from transferring their shares to small groups of selected trustees, resulting in the creation of trusts. In the 19th century, trusts were used to act as monopolies and dominated many industries. In response, the Sherman Act authorized the federal government to initiate proceedings against monopolies to dissolve them. If Amazon is categorized as such, the FTC will likely not shut down Amazon’s entire operation, but it will put limits on Amazon’s ability to transact in the e-commerce world.
The plaintiffs’ main arguments for why Amazon should be categorized as a monopoly mirrors its arguments for unfair competitive practices under the FTC Act. However, the plaintiffs also argue that Amazon’s power should be limited under the Sherman Act due to its control in both the online superstore market and the online services market. The plaintiffs highlight the statistic that Amazon sells over 60% of all goods sold by online superstores. Examples of other superstores include Walmart, Target, and eBay. Amazon has outperformed those companies in online sales since 2015.
The complaint further details that Amazon has primary control over the online services market for sellers who are looking to increase their sales. The “services market” refers to the benefits that Amazon can offer its sellers in exchange for the sellers’ business. Amazon’s large customer base is attractive to sellers who want to sell products in the United States and rely on the popularity of the company to increase their accessibility. In 2021, Amazon sellers sold thirty-four times the number of products sold by sellers who chose to use Walmart as a retailer. Plaintiffs allege that Amazon’s superiority in the online services market allows it to collect and analyze a large amount of data to show to prospective sellers, which in turn increases the number of sellers who decide to use Amazon as a marketplace.
Potential Implications for E-Commerce
If Amazon is found to be a monopoly, its pricing strategies will likely be held as anti-competitive, and other e-commerce sellers such as Walmart and eBay will have a chance to attract consumers by offering lower prices. Furthermore, since Amazon has unique control over the e-commerce superstore market, this case could set a new precedent for the interpretation of online anti-competitive behavior, leading courts to analyze not only pricing strategies but also platform dominance and market access. In the alternative, if Amazon prevails, the decision could lead other e-commerce sellers to pursue similar aggressive business practices without fear of strict FTC regulation.
