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As we reported yesterday in an afternoon breaking news alert, the Federal Trade Commission (FTC) and the attorneys general of 17 states have filed a sweeping antitrust lawsuit against Amazon, 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.

Here are some additional stories about the lawsuit that sketch out the FTC's approach to the action.

•  From The Information:

"Most of the complaints raised in the lawsuit will be familiar to Amazon watchers. But the 172-page lawsuit contains some notable internal information about Amazon that Biden-appointed Chair Lina Khan is using to take on the e-commerce giant … One major focus of the FTC’s suit is Amazon’s pricing policy for outside sellers, which the agency said hurts online shoppers by raising prices across the internet. Amazon previously required outside sellers to keep prices they charged for their goods the same or higher on rival websites, according to the FTC. That meant that a seller who sold an item for $10 on Amazon could get banned if they offered it for $9.99 or less on other websites like Walmart or Target. Amazon abolished the price requirement under political pressure in Europe in 2013 and the U.S. in 2019, but replaced it with a system that accomplishes the same end goal, the FTC alleges.

"If Amazon finds sellers who are underpricing on other sites, it will punish the sellers by removing the 'Buy Now' button - also known as the Buy Box - from their listings. Since sellers make far fewer sales when they don’t have the Buy Box, the threat of removal amounts to an 'existential threat,' according to the FTC. One example: An air fryer listed for $79.99 on Shein’s marketplace and $140 on Amazon that The Information identified earlier this year did not have the Buy Box available on its Amazon listing Tuesday."

Also from The Information:

"One key Amazon pricing tactic is something called 'Project Nessie,' described variously by the FTC as an 'operation,' 'algorithmic tool' and 'pricing system' that has 'extracted' money from U.S. households. One of the charges, for using an unfair method of competition, centers entirely on Nessie. But all the details were blacked out.

"The FTC also alleges that Amazon used another tool - a 'first-party anti-discounting algorithm' - in 2017 to squash a competitor’s attempt to compete on price. While the name of the competitor is redacted in the suit, Walmart launched a program that year that offered online shippers discounts of 3% to 5% to pick up their orders from stores, rather than having them shipped to their homes.

"While details of how Amazon’s algorithm allegedly hurt Walmart are redacted in the suit, the FTC writes that Amazon 'concluded that its first-party anti-discounting strategy ultimately helped induce [Walmart] to stop competing on price through its pickup discount program'."

Two more passages from The Information analysis:

-  "The FTC argues that Amazon’s ad-stuffed search results make shopping a worse experience for customers, but the fact that the company is able to 'degrade the quality of its shopper-facing search results' without 'losing sufficient business to change its behavior' is evidence of its monopoly power.

"Combined with mounting commissions and fulfillment fees, many outside sellers say Amazon is taking a bigger cut of their revenue than ever before. Amazon took roughly 50% of outside sellers’ revenue through fees in 2022, up from about 35% in 2016, according to a Marketplace Pulse study. The FTC’s suit also referred to Amazon taking half of the revenue of a typical seller who uses its fulfillment service, though it’s unclear where the agency sourced that figure."

-  "The FTC argued that Amazon has monopoly power in two markets: U.S. online superstores and online marketplace services. It defined an online superstore as a seller that has a broad selection of goods and features like seamless checkouts and user reviews for products, and said that bricks-and-mortar stores and online shops that offer a more limited selection aren’t competitors from customers’ perspective because they offer a different shopping experience.

"That definition is important because Amazon has long argued that it doesn’t have monopoly power in retail when counting brick-and-mortar sales, which still dwarf online sales in the U.S. The FTC’s lawsuit noted that Amazon’s share of the value of goods sold by online superstores is more than 60%, citing data from the company and industry analysts. It also cited Bank of America estimates showing that Amazon is much larger than other top online sellers like eBay, Walmart and Target in terms of sales volume. Notably, the FTC excluded online grocery purchases from its market share calculations, saying that groceries differ from other goods in how they are stored and delivered."

•  The New York Times has a piece about Amazon CEO Andy Jassy, who succeeded founder Jeff Bezos in the top job two years ago, noting that while "the redacted complaint mentions Mr. Bezos 16 times, and Mr. Jassy only twice," Jassy now essentially has to clan up a mess that Bezos created.

"Mr. Jassy joins other big tech chief executives who have taken control of enormous businesses from idiosyncratic founders at difficult moments. As with those other second-generation bosses, Mr. Jassy’s success will not only depend on whether he is a visionary like the man who started the company. It could also be shaped by how well he navigates the fears of Wall Street investors and the distrust of regulators in Washington."

The Times goes on:

"When Mr. Jassy took over in July 2021, the pandemic had supercharged the company’s growth. But that growth soon hit a wall.

"Wall Street had long given Mr. Bezos a pass, tolerating periods of little to no profit as the company pursued new ventures — from costly studio productions and a massive organization to build the Alexa voice assistant to drone deliveries and a hunt to build successful grocery stores — but the share price fell swiftly … Though Mr. Jassy has said 'the team made the right decision' to spend aggressively in the pandemic, he slammed the brakes on the company’s warehouse expansion, paused work on the largest phase of Amazon’s planned second headquarters in Northern Virginia, and laid off 27,000 corporate and tech employees.

"He ended or pared back some of the company’s bets that had yet to truly pay off, laying off employees from teams working on the Alexa voice assistant, drones and automated stores … The changes have begun producing results. Amazon’s growth has picked up steam, and profits expanded more than Wall Street expected. In the latest quarter, sales grew 11 percent to $134.4 billion, and profit rose to $6.7 billion, up from a small loss a year earlier."

However, the Times writes, "In many ways, Mr. Jassy’s success has come from making Amazon more dependent on the parts of the business that the F.T.C. is targeting: the services, like advertising and fulfillment, that it offers to sellers on its marketplace.

"In the past year, sales of products Amazon sells online directly to customers were up just 4 percent, but the services it provides sellers to reach customers, including shipping and referral fees, grew 18 percent. Advertising was up 22 percent."

•  The National Grocers Association (NGA) yesterday released the following statement:

“The FTC’s complaint against Amazon highlights the urgent need for antitrust enforcement.  Amazon’s dominance in the digital realm mirrors the tactics seen by powerful grocery chains on Main Street. In both instances, these large gatekeepers leverage their size and market power to extract favorable terms and exclusive deals with vendors, undermining competition and harming consumers.  Whether it's the digital marketplace or brick-and-mortar retail, the FTC's move underscores the vital importance of ensuring that consumers benefit from a variety of choices, competitive pricing, and fair market environment that empowers both independent businesses and the consumers themselves.”

•  Here is part of the Amazon response to the FTC suit:

"We’re proud of the low prices customers find when shopping in our store—we know customers have many options, and that competitive prices are essential if we want customers to choose us. We’ve also enabled third-party businesses to sell their products right alongside the products we sell ourselves, which provides opportunities for those businesses and an even better experience for customers. When setting prices for the products we sell ourselves, we try to match other retailers’ low prices—online and offline. All of the other businesses that sell in our store set their prices independently, but to help them increase sales and make our store more attractive to customers, we also invest in tools and education to help them offer competitive prices. Other retailers also use similar tools and practices to highlight competitive offers and provide customers value in their stores.

"Even with those tools, some of the businesses selling on Amazon might still choose to set prices that aren’t competitive. 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’s part of our commitment to featuring low prices to earn and maintain customer trust, which we believe is the right decision for both consumers and sellers in the long run.

"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 and if they were successful in this lawsuit, the result would be anticompetitive and anti-consumer because we’d have to stop many of the things we do to offer and highlight low prices - a perverse result that would be directly opposed to the goals of antitrust law."


"The FTC’s complaint grossly mischaracterizes the retail industry and the dynamic competition that consumers benefit from every day. Consumers today still buy over 80% of all retail products in physical stores. And as any shopper knows, you can buy the same products at any number of different retailers that compete vigorously with each other, including brick-and-mortar stores, online stores, and quickly growing hybrid models like buy-online-pick-up-in-store. This multitude of options gives customers the ready ability to shop around for the best deal. All of that competition leads to low margins for retailers, but lots of options for sellers to sell their products and better prices for customers wherever they choose to buy.

"The FTC pretends that this everyday retail competition doesn’t exist. But its attempt to gerrymander alleged markets into narrow subsets of retailers (who in reality compete with other retailers on the same products) can’t make Amazon into something it is not. Amazon may not be the small business it once was, but we’re still just a piece of a massive and robust retail market with numerous options for consumers and sellers."

KC's View:

I'm always careful to point out that I am not an antitrust expert, and it seems clear that whether this case succeeds or not will depend on how the courts react to a redefined definition of acceptable competition.

Some thoughts:

But, if Amazon delists or de-emphasizes products that are being sold for lower prices elsewhere, isn';t that its right as a retail platform?  Don't other retailers do the same thing (though perhaps not as ruthlessly or effectively)?  Shouldn't they do the same thing, in the interests of their customers?

I would whole-heartedly agree that Amazon has made some decisions, especially around advertising and the creation of alternative revenue streams, that have made the customer experience worse.  But I'm not sure that it is within the purview of the FTC to address this and make it chargeable.

A lot of folks - me included - have suggested that what Amazon really needs is for Bezos to return.  But the Times piece raises a fascinating alternative view - that Bezos created the mess that Jassy has to clean up.  Going to have to keep that in mind going forward.

Can't wait to see the redacted parts of the suit, if indeed they ever see the light of day.  "Project Nessie?"  Really?  A secret plan named after the Loch Ness monster?