Amazon has been sued by U.S. regulators and 17 states alleging that its policies inflate online prices and stifle competition.
The Federal Trade Commission announced in a press release on Tuesday that it was suing Amazon over anticompetitive practices that it used to strangle competition while favoring its own business. The lawsuit focuses primarily on Amazon’s ecommerce business, with the FTC accusing it of using its size to create unfavorable conditions for third party sellers.
The lawsuit, filed Tuesday in federal court in Amazon’s home state of Washington, is the result of a yearslong investigation into the company’s businesses and one of the most significant legal challenges brought against it in its nearly 30-year history.
“Our complaint lays out how Amazon has used a set of punitive and coercive tactics to unlawfully maintain its monopolies,” FTC Chair Lina M. Khan said in a 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.”
Seattle-based Amazon.com Inc. said the FTC is “wrong on the facts and the law” and had departed from its role 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,” Amazon General Counsel David Zapolsky said in a prepared statement.
It all goes back to ‘Amazon’s antitrust paradox’
The world’s biggest ecom vendor is accused of intentionally harming third-party sellers that sell their goods at a lower price than Amazon. When Amazon discovers it’s being undercut on price, the lawsuit alleges, it decides to move that seller further down in its own search results, making them “effectively invisible.”
Some estimates show Amazon controls about 40% of the e-commerce market. A majority of the sales on its platform are facilitated by independent sellers consisting of small- and medium-sized businesses and individuals. In return for the access it provides to its platform, Amazon rakes in billions through referral fees and other services like advertising, which makes products sold by sellers more visible on the platform.
Khan and the FTC also took aim at Amazon’s policy of forcing sellers to use the tech giant’s fulfillment centers. Doing so forces the small and medium-sized businesses that use Amazon to reach customers to incur higher logistics costs, while limiting their ability to sell their products elsewhere.
“With its amassed power across both the online superstore market and online marketplace services market, Amazon extracts enormous monopoly rents from everyone within its reach,” reads the FTC’s press release.
Between payments to use its fulfillment centers, advertising costs that are “virtually necessary for sellers to do business,” and a fee for each item sold, the FTC estimates that some sellers end up paying 50% of their total revenues to Amazon.
Amazon is also accused of harming consumers by limiting the choices of products they see when shopping on the platform. For example, the FTC claims that Amazon skews search results in favor of its own products, even when it knows they are of worse quality than others available on its site. It also places advertisements above organic search results, “deliberately increasing junk ads.” By doing so, Amazon hurts customers who want access to higher-quality goods and sellers who are sold ineffective advertising.
The FTC is seeking a permanent injunction in federal court that would bar Amazon from continuing these practices.
Consumer advocacy groups applauded the lawsuit, while an industry group said many large retail businesses have policies that mirror Amazon’s.
There has been speculation the agency would seek to a forced breakup of the retail giant, which is also dominant in cloud computing and has a growing presence in other sectors, like groceries and health care. In a briefing with reporters, Khan dodged questions of whether that will happen.
“At this stage, the focus is more on liability,” she said.
Amazon has long faced allegations of undercutting businesses that sell on its platform by assessing merchant data and creating its own competing products that it then boosts on its site. In August, the company said it was eliminating some in-house brands that weren’t resonating with customers and would relaunch some items under existing brands like Amazon Basics and Amazon Essentials. Booksellers and authors have also been urging the Department of Justice to investigate what they’ve called Amazon’s “monopoly power over the market for books and ideas.”
Khan, the FTC chair, has long been a tech hawk. She first rose to prominence in legal circles for publishing the article “Amazon’s Antitrust Paradox” in the Yale Law Journal when she was a law student. What was particularly groundbreaking in the article were Khan’s calls for a new definition of antitrust laws that considered more than just the effect on consumer prices.
“The company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses that depend upon it,” Khan wrote at the time. “Elements of the firm’s structure and conduct pose anti competitive concerns—yet it has escaped antitrust scrutiny.”
She reasoned that Amazon had escaped antitrust scrutiny because the laws were outdated. The current business environment around Big Tech had allowed Amazon to pursue growth over profits with no repercussions in a way that the Roosevelt-era monopolies couldn’t (the laws were written specifically to apply to firms from that era). “Under these conditions, predatory pricing becomes highly rational—even as existing doctrine treats it as irrational and therefore implausible,” Khan said. Even at the time, she was concerned that Amazon’s role as both a seller in its own right and a the tech company who controlled the infrastructure on which others sold their products would give it an unfair advantage.
Amazon had previously sought to have Khan recuse herself from any antitrust investigations into the company. In June 2021, Amazon filed a 25-page petition to the FTC saying her previous criticism of Amazon made her appear to be biased.
Under Khan’s watch, the FTC has aggressively attempted to blunt Big Tech’s influence but has been unsuccessful recently in some of the most high-profile cases, including its bid to block Microsoft’s takeover of the video game maker Activision Blizzard and Meta’s acquisition of the virtual reality startup Within Unlimited. The agency is now in the middle of a protracted lawsuit against Facebook parent Meta, which it alleges to have engaged in monopolistic behavior. The Justice Department is also challenging Google’s market power in court.
In addition to the lawsuit in California, the District of Columbia has also sued Amazon over its treatment of third-party sellers. That lawsuit was thrown out by a federal judge earlier last year and is currently under appeal.
The federal complaint follows other actions the FTC has taken against Amazon in the past few months. In June, the agency sued the company, alleging it was using deceptive practices to enroll consumers into Amazon Prime and making it challenging for them to cancel their subscriptions. Amazon disputes the allegations.
In late May, the company agreed to pay a $25 million civil penalty to settle allegations that it violated a child privacy law and misled parents about data deletion practices on its popular voice assistant Alexa.
