The Federal Trade Commission (FTC) and the attorneys general of 17 states filed a sweeping lawsuit against Amazon today, charging the company with business practices that abuse the third part sellers on its Marketplace, forcing them to pay high fees for services that result in higher prices for consumers.
The suit has been expected, as Amazon has held meetings with FTC regulators to see if they could head off a lawsuit. That always seemed unlikely, however, since FTC Chair Lina Khan’ made her reputation in part based on a law school paper she wrote calling for Amazon to be broken up. That paper, “Amazon’s Antitrust Paradox," argued that Amazon's behavior was inherently anti-competitive but that antitrust law was being interpreted in such a way that allowed it to evade scrutiny.
As of today, that seems to have changed. The Wall Street Journal writes that "until recently, it has been rare for federal agencies to file monopoly lawsuits seeking to break up companies accused of anticompetitive behavior. While the FTC and Justice Department regularly seek to block what they see as illegal acquisitions, the government doesn’t often move against companies for anticompetitive behavior unrelated to acquisitions."
The FTC investigation into Amazon's business practices began in the Trump administration, and reflects an evolving perspective on how anti-competitive behavior should be designed in a 21st century digital economy. The states involved in the case are Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, and Wisconsin.
From the Journal story:
"The FTC and states alleged that Amazon violated antitrust laws by using anti-discounting measures that punished merchants for offering lower prices elsewhere. The government also said sellers on Amazon were compelled to use its logistics service if they want their goods to appear in Amazon Prime, the subscription program whose perks include faster shipping times, the FTC said.
"The FTC said sellers feel they must use Amazon’s services such as advertising to be successful on the platform. Between being paid for its logistics program, advertising and other services, 'Amazon now takes one of every $2 that a seller makes,' Khan said at a briefing with the media Tuesday.
"'Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them,' Khan said in a statement."
The Washington Post (which is owned, in a private investment, by Amazon founder Jeff Bezos), framed its coverage this way:
"The lawsuit, filed in Western Washington district court, marks a historic political test of one of the world’s most influential companies — as well as the regulators who have promised for years to rein in its allegedly monopolistic practices.
"The FTC alleges that Amazon engages in illegal behavior in both its online shopping marketplace and in the many services it offers to third-party sellers, allowing the company to extract 'monopoly rents from everyone within its reach," according to a news release about the suit. This means Amazon can boost its own products in search results over others that are better quality, and charge costly fees to sellers that rely on the tech giant to stay in business."
The New York Times writes:
"Much of the Seattle-based company’s power has emanated from its online marketplace, sometimes known as an 'everything store' for the range of products it sells and the speed with which it delivers them. Amazon’s sway over online commerce has shaped the lives of merchants around the world, set the working conditions for more than one million warehouse workers and pushed the U.S. Postal Service to deliver on Sundays."
Despite regulatory scrutiny that now goes back years, the Times writes, "In the past three years, (Amazon) bought One Medical, a chain of primary care practices; the Roomba manufacturer iRobot; and the fabled movie studio Metro-Goldwyn Mayer, giving it a major stake in the James Bond franchise. These deals have added to an empire that includes its online superstore, cloud computing services that power wide areas of the web and a streaming service that competes with rivals like Netflix.
"The F.T.C.’s competition team began investigating Amazon’s business in summer 2019, with no shortage of complaints about the company’s business practices from critics and rivals.
"Amazon’s critics said it had strong-armed sellers that offered goods on its platform, forcing competitors into punishing price wars and boosting the products it makes itself over those supplied by outside merchants. Its interlocking control of different parts of online retail — from the storefront to the delivery vans that take packages to consumers’ doorsteps — allowed it to dominate competitors, they said."
David Zapolsky, Amazon senior vice president of global public policy and general counsel, released a statement saying that the suit is “wrong on the facts and the law … Today’s suit makes clear the FTC’s focus has radically departed from its mission of protecting consumers and competition. 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."
Khan, unsurprisingly, took the opposite view: "If we succeed, competition will be restored, and people will benefit from lower prices, greater quality, and greater selection as a result," she said.
CNN reports that "The complaint was filed in the US District Court for the Western District of Washington, and seeks a court order blocking Amazon from engaging in the allegedly anticompetitive behavior. Khan declined to say Tuesday whether the agency will be seeking a breakup of the company, saying the case is currently focused on proving Amazon’s liability under federal antitrust law.
"The suit makes Amazon the third tech giant after Google and Meta to be hit with sweeping US government allegations that the company spent years violating federal antitrust laws, reflecting policymakers’ growing worldwide hostility toward Big Tech that intensified after 2016. The litigation could take years to play out. But just as Amazon founder Jeff Bezos and his spectacular wealth have inspired critics to draw comparisons to America’s Gilded Age, so may the FTC lawsuit come to symbolize a modern repeat of the antitrust crackdown of the early 20th century."
- KC's View:
Obviously, there will be more about this in coming days, but let me just offer eight initial reactions to this suit…
1. Finally. There's been so much speculation about this suit that I'm glad we finally have something tangible to talk about.
2. My bet is that Amazon gets broken up in some way shape or form. I've read and heard a number of stock market experts who believe that the value of its various parts actually would be greater than its value as a single entity - and so the investment community may actually be rooting for this to happen.
3. I'm not an antitrust expert, nor am I a lawyer, but I simply don't understand how some of the allegations amount to monopolistic behavior. For example, why can't Amazon give better prices and service to Marketplace vendors that use more of its suite of services? Doesn't that kind of make sense? And why can't Amazon insist that prices on its Marketplace be the lowest available online? (I would think that there are plenty of big box bricks-and-mortar retailers that would make their feelings known if the big box across the street had lower prices on certain items.)
4. Is it possible that Amazon, to a great extent, is simply better at certain things - like "strong-arm tactics with vendors" - than its competition, and that companies like Walmart and Costco are equally tough, though largely in a bricks-and-mortar environment that isn't getting the same level of scrutiny?
5. Khan said today that Amazon is “squarely focused on preventing anyone else from gaining that same critical mass of customers, … This complaint reflects the cutting edge and best thinking on how competition occurs in digital markets and, similarly, the tactics that Amazon has used to suffocate rivals, deprive them of oxygen, and really leave a stunted landscape in its wake.” Maybe so, but I would point to Khan that every retailer does its best to prevent the competition from gaining access to its customers. Just saying.
6. If the FTC outlaws strong-arm tactics by retailers, I'm pretty sure the immediate result won't be lower prices. Anywhere.
7. I don't think there is anything wrong with reinterpreting antitrust law for a new age - it is silly to apply 20th century premises to 21st century realities.
8. I do think that a tough, nuanced examination of how big retailers - in this case, Amazon - do business is probably a good thing for shoppers. (Though I'm not nearly as sure as Khan that the immediate effect will be lower prices.) My bet is that it will be proven that in some cases, Amazon crossed the line, though in many cases, what it was engaging in was old-fashioned, hard-nosed retailing. This is all going to be about the definition of competition - and Amazon isn't going to go quietly.
We'll have more tomorrow.