The federal government’s knives are out for one of America’s beloved online retailers. If it succeeds, Amazon may get carved up in ways that will leave shoppers and business owners feeling the pain.
Yesterday, the Federal Trade Commission (FTC) filed a lawsuit against Amazon claiming that engages in unfair anti-competitive business practices.
According to the FTC’s press statement:
The complaint sets forth detailed allegations noting how 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. Today’s lawsuit seeks to hold Amazon to account for these monopolistic practices and restore the lost promise of free and fair competition.
According to the complaint, Amazon violates antitrust laws by engaging in pricing, product selection, and quality assurance practices that make it difficult for sellers on the platform to offer lower prices. Additionally, Amazon allegedly requires sellers to use its fulfillment service to have their products included in Amazon Prime so that consumers can get them within one-to-two days for free. The FTC also claims that Amazon charges sellers costly fees, biases its search results toward its products, and inserts paid ads into search results.
The problem for the FTC will be proving everything it alleges and proving it using the framework that guides antitrust law today, the consumer welfare standard, which measures anticompetitive behavior based on increased prices and reduced production. Evidence points to the opposite of what the FTC claims.
Here are three points that refute the FTC’s claims:
- Amazon is not pushing online prices higher. Adobe Analytics found last month that e-commerce prices tumbled by 3.2% year over year in August, the biggest annual drop in 40 months, or just over three years. This is good news in the fight against inflation.
- Retail commerce is growing more competitive and innovative not less. First, Amazon is not the biggest retail player. Walmart topped the chart of the top 10 U.S. retailers as measured by sales beating Amazon by double. Amazon’s e-commerce market share in the U.S. is around 38%.
Even more, the retail landscape is growing more dynamic and innovative as brick-and-mortar stores are evolving to compete with online retailers in ways that deliver more choices and shopping experiences for consumers as well as more competitive prices. A recent industry report concluded, “findings suggest that competition among retailers and across retail channels is intense, that they respond quickly to each other’s prices and that, as a consequence, regulation affecting online commerce is expected to affect prices in brick-and-mortar stores, and vice versa. The increasing popularity of omnichannel shopping, whereby consumers mix and match online and offline components of their shopping journey, also may encourage convergence between online and offline prices.”
- Independent sellers who do not use Amazon’s fulfillment services regularly beat out sellers who do in high-ranked search results. This discredits the argument that Amazon manipulates consumer search results to harm marketplace sellers who do not use its fulfillment services. Independent sellers say they are not disadvantaged by Amazon. According to Evans Richards who owns reVend, an online-only seller of collectibles and toys, his company hasn’t used Amazon’s fulfillment service since 2016 and they do not advertise on Amazon, but reVend’s listings still win the Buy Box. “Amazon’s algorithms are secret, but it’s well known among sellers that everything at Amazon is based on only one metric – what will best serve the consumer. We win the Buy Box consistently because our products are priced fairly, get terrific reviews, are delivered on time, and our customers are happy with their shopping experience.”
What This Means for Me
Regular people care about how government policies will impact them. Most simply, this FTC complaint and recommendations could lead to at least three outcomes:
- Breaking Amazon Prime – Amazon Prime is a popular and beloved service that is enjoyed by many. Free and fast delivery are its most favored benefits. A whopping 84.6% of users polled pointed to the free and fast delivery as the platform’s best feature. This lawsuit could force the end of the fulfillment service that makes it possible and break Amazon Prime.
- Higher prices – It could become more difficult to get a wide variety of affordable products.
- Chinese companies benefit while U.S. companies lose – Chinese companies like Temu and Shein compete by offering low prices on goods but at slower shipping rates. They don’t have the same regulatory rules that American companies do. If companies like Amazon can’t offer fast and free shipping (see point #1), they lose their competitive edge and their Chinese competitors win.
Suing Amazon on faulty premises is not an issue that Americans expect or want the federal government to focus on, especially if its actions will lead to higher prices amidst high inflation, slower shipping of goods, and fewer options.
The motivation behind this lawsuit by the FTC’s chairwoman, Lina Khan, is to replace the agency’s current approach to its work—less government intervention in private business—with a more active approach to breaking up companies the federal government deems to be too big. Amazon has been in Khan’s crosshairs since her law school days in an infamous 2017 paper.
The bottom line is if Khan’s FTC wins this case, consumers and sellers will lose big.