The U.S. Federal Trade Commission has made its first move against Amazon by launching a lawsuit against the e-commerce and cloud giant. The FTC is alleging that Amazon has utilized its "monopoly power" to increase prices, reduce the quality of products for shoppers, and obstruct competitors. This suit is hugely significant for FTC Chair Lina Khan, who has been widely recognized for her 2017 Yale Law Journal writing on the "Amazon Antitrust Paradox".
On Tuesday, the Federal Trade Commission and 17 state attorneys general filed an antitrust lawsuit against Amazon in a US federal court in Seattle. In the complaint, they accused Amazon of using its "monopoly power" to artificially inflate prices, reducing the quality of the shopping experience, and excluding competitors. As a result of the announcement, Amazon's shares dropped by nearly 4%, although the overall market was also down.
The FTC outlined a two-pronged approach that Amazon allegedly employs to maintain its monopoly power. This includes using anti-discounting measures to stop sellers from offering lower prices than Amazon, leading to higher prices overall, as well as requiring sellers to use costly fulfillment services to be eligible for the Prime badge. According to FTC Chair Lina Khan, sellers are paying Amazon $1 out of every $2 they make. Additionally, Amazon's tactics have caused search results to be flooded with advertisements, which can steer shoppers toward more expensive products.
Khan argued at a briefing that Amazon is exploiting its monopolistic status, leading to shoppers and sellers paying more for worse service in an environment that's closed off from competitors. Amazon's general counsel and senior vice president of global public policy, David Zapolsky, however, has said that the FTC's complaint is wrong on the facts and the law, as the practices challenged have led to greater selection, lower prices, and faster delivery speeds from Amazon. Although the FTC did not outline potential remedies such as a breakup or divestment when announcing the lawsuit, it is primarily seeking to hold Amazon liable for its actions and is calling for structural relief--such as breakups or divestments--to the extent necessary to resolve the harm, should the court find Amazon liable. The case is a major milestone for Khan, who published an article in 2017 that argued the existing antitrust framework was unable to capture the true extent of Amazon's dominance and its potential to do harm. Khan has sought to push the boundaries of antitrust law through her work at the FTC.
Amazon asked for Khan to recuse herself from antitrust investigations into its activities, citing pre-existing criticism and commentary she had made, which suggested she had already made up her mind regarding the outcomes of such probes. This situation followed years of pushback from competitors, merchants, and legislators towards what they perceived as anticompetitive tactics employed by Jeff Bezos' Seattle-based firm, which has risen to become a formidable $1.4 trillion tech, retail, advertising, and cloud computing giant.The House Judiciary subcommittee on antitrust conducted investigations into four Big Tech companies, including Amazon, and determined it held monopoly power over most of its third-party vendors and suppliers. The majority Democratic staff at the time said Amazon had created "competitive moats" through acquisitions such as Diapers.com and Zappos. Amazon denied the allegations with a statement that stated "large companies are not dominant by definition, and the presumption that success can only be the result of anti-competitive behavior is simply wrong."
Amazon's efforts to expand its reach--which has included acquisitions of One Medical, MGM, and Whole Foods--have attracted the attention of regulators. The House subcommittee report also accused Amazon of using its online retail status to harm its third-party vendors, and suggested it utilized "strong-arm tactics" to push around its retail partners. The FTC is also looking into the $1.7 billion buyout of iRobot, iRobot, maker of the Roomba, as a potential antitrust concern. In 2020, Amazon paid out roughly $30m to settle two privacy lawsuits brought by the FTC in regards to its Ring doorbell and Alexa devices. In June of this year, the FTC sued Amazon for allegedly deceiving customers into signing up for Prime while making it difficult for them to cancel. The marketplace was founded by Jeff Bezos in 2000 and brought a much larger selection of items than when Amazon initially began as an online bookseller. This third-party marketplace has been lucrative, as Amazon now charges sellers 45% of each sale they make in the U.S., which is more than double what it charged in 2014. Third-party sellers now account for 60% of all units sold on Amazon.
Read the full complaint here:
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