Overview
On September 26, 2023, the Federal Trade Commission (FTC), along with 17 states, filed an antitrust lawsuit against Amazon.com. The 150+ page complaint alleges that Amazon uses its monopoly power to raise prices, degrade services, and stifle competition. This action is one of several moves by the federal government aimed at limiting the market power of Big Tech firms, with federal lawsuits also filed against Alphabet’s Google and Meta’s Facebook in recent years. The move also comes amid the roll-out of Europe’s robust antitrust law, the Digital Markets Act (DMA), which has already forced Amazon to make concessions in Europe on issues raised in the FTC complaint.
Background
At the core of the complaint filed by the FTC is the argument that Amazon has allegedly used its market dominance to raise fees on third-party sellers, resulting in higher prices for customers and lower quality of service. The suit argues that without Amazon’s market power, the company would be unable to maintain its third-party fees due to pressure from competitors. This contrasts with the argument made by current FTC Chair Lina Khan in her 2017 study titled “Amazon’s Antitrust Paradox,” which raised antitrust concerns about Amazon’s growth-over-profits strategy. The FTC’s current focus on high consumer prices is more closely aligned with the current US antitrust paradigm, which has led courts to make decisions primarily based on “consumer welfare” rather than market concentration.
Amazon has, on several occasions, increased fees on third-party suppliers over the last few years. In April 2022, Amazon introduced a 5 percent fee on third-party sellers, called a fuel and inflation surcharge. Then, on October 1, 2023, Amazon announced it would begin charging a 2 percent fee to third-party sellers in Amazon’s Prime program who chose to ship products themselves rather than use Amazon’s fulfillment service, as reported by the Associated Press. The complaint filed by the FTC alleges that these new fees, along with fees for referrals, advertising, and fulfillment, have led third-party sellers to give Amazon nearly half of every dollar of their revenue. According to the FTC, these fees, coupled with the fact that Amazon competes with third-party sellers who allegedly “depend on them,” is evidence that Amazon is exploiting its market power to enrich itself.
Setting aside the potential impact of Amazon’s behavior on third-party suppliers, the extent to which high fees are passed down to consumers in measurably harmful ways remains an open question. According to Business Insider, Amazon’s product prices grew slower than US inflation in 2022, with prices growing by 6 percent and inflation between 7 and 9 percent. Despite this, the FTC maintains that Amazon has artificially inflated prices for shoppers and sellers partially by preventing consumers from comparison shopping, which has restricted third-party merchants' ability to expand their consumer base and, ultimately, offer lower prices. The lawsuit also alleges that Amazon is degrading services by using “pay-to-play” advertisements, which force sellers to pay for advertising to customers, thereby decreasing the relevance of search results and increasing the prominence of products with higher prices.
The FTC faces an uphill battle in gaining public support for the argument that Amazon has caused negative impacts on consumer welfare, according to Michael Carrier at the Rutgers Institute for Information Policy and Law. According to Carrier, consumers appear generally “happy” with Amazon, as reported by the Financial Times. Indeed, polling by the Harvard CAPs Harris Poll in May 2023 revealed that Americans view Amazon more favorably than other major institutions such as the US military and Google, with 78 percent viewing Amazon favorably, a 5 percent increase from the same survey in 2021.
In its response to the complaint, Amazon zeroed in on the FTC’s claim about high prices to consumers, pointing out the FTC’s acknowledgment of Amazon’s practices (such as matching low third-party prices and highlighting “competitively priced” offers) that arguably lead to lower prices. Amazon also notes that, if courts were to uphold the FTC’s challenge, this would expectedly result in higher prices. However, Amazon’s initial response does not address the FTC’s concerns over highly priced items appearing as advertisements in product searches.
Until 2019, Amazon had imposed contracts on suppliers that barred them from selling goods at lower prices outside their platform. The company changed this practice a few months after Sen. Richard Blumenthal urged the Department of Justice to investigate the price parity clauses in Amazon’s contracts. The FTC suit alleges that this requirement still exists in principle, however, due to Amazon’s algorithm that punishes third-party suppliers who offer their products for lower prices outside of its platform.
Why Is This Important?
Amazon is not the only Big Tech firm to employ “pay-for-play” advertisements and to impose high fees on sellers using their platform. Apple currently collects a commission of up to 30 percent on its mobile app store, a requirement that has already led to litigation. In September 2021, a US District judge ruled against Apple in Epic vs. Apple but did not require Apple to lower its commission or change its fees, according to Bloomberg. Forbes reported in 2021 that Google had paid Apple an estimated $15 billion to maintain its default status on Apple’s Safari search engine. If the FTC were to win this lawsuit, Apple’s behavior may enter the FTC’s crosshairs.
This suit comes mere months after the European Union designated both Amazon and Apple (among other Big Tech firms) as “gatekeepers” under Europe’s Digital Markets Act, which was covered in the July 2022 Tech Regulation Digest. Starting in March 2024, gatekeeper firms will be required to abide by the dos and don’ts of the DMA, including permitting users to download apps from alternative stores and barring firms from favoring their own services.
In anticipation of the DMA, Amazon has already made concessions in Europe on issues highlighted by the FTC lawsuit, including concerns over Amazon’s “Buy Box” (the display where shoppers can directly purchase or add a product to their cart). The FTC suit contends that the Amazon algorithm kicks sellers out of the Buy Box as a sanction for offering lower prices on other sites. In Europe, Amazon agreed in December 2022 to treat all sellers equally when determining the Buy Box winner and to display two Buy Boxes to provide shoppers with more options.
What Happens Next
This lawsuit has been characterized by many as ambitious, but some Amazon critics, like Stacy Mitchell with the Institute for Local Self-Reliance, have suggested that the existence of the suit itself may lead Amazon to pull back some of its practices. Mitchell hopes that the lawsuit will put Amazon “back on their heels” and lead to more cautious behavior moving forward.
Even though the FTC’s lawsuit results from a four-year investigation into Amazon’s online marketplace, the lawsuit has only just been filed, and antitrust cases can take several years to complete. The Justice Department filed a civil antitrust lawsuit against Google in 2020 and received a trial date in September 2023. A similar timeline may lie ahead for the FTC and Amazon.
Check our Tech Regulation Tracker for updates on this lawsuit and other important developments.