Amazon Antitrust Case

From The Federal Trade Commission:

September 26, 2023

The Federal Trade Commission and 17 state attorneys general today sued Amazon.com, Inc. alleging that the online retail and technology company is a monopolist that uses a set of interlocking anticompetitive and unfair strategies to illegally maintain its monopoly power. The FTC and its state partners say Amazon’s actions allow it to stop rivals and sellers from lowering prices, degrade quality for shoppers, overcharge sellers, stifle innovation, and prevent rivals from fairly competing against Amazon.  

The complaint alleges that Amazon violates the law not because it is big, but because it engages in a course of exclusionary conduct that prevents current competitors from growing and new competitors from emerging. By stifling competition on price, product selection, quality, and by preventing its current or future rivals from attracting a critical mass of shoppers and sellers, Amazon ensures that no current or future rival can threaten its dominance. Amazon’s far-reaching schemes impact hundreds of billions of dollars in retail sales every year, touch hundreds of thousands of products sold by businesses big and small and affect over a hundred million shoppers. 

“Our complaint lays out how Amazon has used a set of punitive and coercive tactics to unlawfully maintain its monopolies,” said FTC Chair Lina M. Khan. “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.”

“We’re bringing this case because Amazon’s illegal conduct has stifled competition across a huge swath of the online economy. Amazon is a monopolist that uses its power to hike prices on American shoppers and charge sky-high fees on hundreds of thousands of online sellers,” said John Newman, Deputy Director of the FTC’s Bureau of Competition. “Seldom in the history of U.S. antitrust law has one case had the potential to do so much good for so many people.”

The FTC and states allege Amazon’s anticompetitive conduct occurs in two markets—the online superstore market that serves shoppers and the market for online marketplace services purchased by sellers. These tactics include:

• Anti-discounting measures that punish sellers and deter other online retailers from offering prices lower than Amazon, keeping prices higher for products across the internet. For example, if Amazon discovers that a seller is offering lower-priced goods elsewhere, Amazon can bury discounting sellers so far down in Amazon’s search results that they become effectively invisible.
• Conditioning sellers’ ability to obtain “Prime” eligibility for their products—a virtual necessity for doing business on Amazon—on sellers using Amazon’s costly fulfillment service, which has made it substantially more expensive for sellers on Amazon to also offer their products on other platforms. This unlawful coercion has in turn limited competitors’ ability to effectively compete against Amazon.

Amazon’s illegal, exclusionary conduct makes it impossible for competitors to gain a foothold. 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. This includes:

• Degrading the customer experience by replacing relevant, organic search results with paid advertisements—and deliberately increasing junk ads that worsen search quality and frustrate both shoppers seeking products and sellers who are promised a return on their advertising purchase.
• Biasing Amazon’s search results to preference Amazon’s own products over ones that Amazon knows are of better quality. 
• Charging costly fees on the hundreds of thousands of sellers that currently have no choice but to rely on Amazon to stay in business. These fees range from a monthly fee sellers must pay for each item sold, to advertising fees that have become virtually necessary for sellers to do business. Combined, all of these fees force many sellers to pay close to 50% of their total revenues to Amazon. These fees harm not only sellers but also shoppers, who pay increased prices for thousands of products sold on or off Amazon.  

The FTC, along with its state partners, are seeking a permanent injunction in federal court that would prohibit Amazon from engaging in its unlawful conduct and pry loose Amazon’s monopolistic control to restore competition.

Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, and Wisconsin joined the Commission’s lawsuit. The Commission vote to authorize staff to file for a permanent injunction and other equitable relief in the U.S. District Court for the Western District of Washington was 3-0.

Link to the rest at The Federal Trade Commission

PG has posted about this matter previously. When this complaint was originally filed, the public consensus from independent antitrust attorneys was that the FTC was unlikely to succeed.

From The United States Department of Justice, Antitrust Division:

The Antitrust Laws

The Antitrust Division enforces federal antitrust and competition laws. These laws prohibit anticompetitive conduct and mergers that deprive American consumers, taxpayers, and workers of the benefits of competition.

The Sherman Antitrust Act

This law prohibits conspiracies that unreasonably restrain trade. Under the Sherman Act, agreements among competitors to fix prices or wages, rig bids, or allocate customers, workers, or markets, are criminal violations. Other agreements such as exclusive contracts that reduce competition may also violate the Sherman Antitrust Act and are subject to civil enforcement.

The Sherman Act also makes it illegal to monopolize, conspire to monopolize, or attempt to monopolize a market for products or services. An unlawful monopoly exists when one firm has market power for a product or service, and it has obtained or maintained that market power, not through competition on the merits, but because the firm has suppressed competition by engaging in anticompetitive conduct. Monopolization offenses may be prosecuted criminally or civilly.

The Clayton Act

This law aims to promote fair competition and prevent unfair business practices that could harm consumers. It prohibits certain actions that might restrict competition, like tying agreements, predatory pricing, and mergers that could lessen competition.

An illegal merger occurs when two companies join together in a way that may substantially lessen competition or tend to create a monopoly in a relevant market. This reduction in competition can harm consumers by potentially leading to higher prices or fewer choices for products or services. It can also harm workers by potentially leading to lower wages or fewer choices for employment.

An illegal tying agreement happens when a company forces customers to buy one product (the tying product) in order to purchase another product (the tied product). The two products are bundled or “tied” together, which gives the tying agreement its name. This practice restricts a customer’s choice and can limit competition. In a fair marketplace, business compete on price and on how good their products are. If an illegal tying arrangement is in place, a seller can use its strong market power on a popular product to force customers to buy a second, lesser product.

Predatory pricing is when a company sets its prices very low, often below cost, to drive competitors out of business. Once the competition is gone, the company can raise prices because it has less or no competition left.  This practice harms competition and, in the long run, it can result in higher prices for consumers and lower wages for workers.

The Clayton Act also prohibits an individual from sitting on boards of competing corporations. This illegal practice can lessen the competitive vigor that would otherwise exist between truly independent rivals. By sharing a board member, the two companies might synchronize pricing changes, labor negotiations, and more.  

The goal of the Clayton Act is to maintain a fair marketplace where various companies can compete, giving consumers more options and better prices, and giving workers a fair market for their labor. This law also protects individuals and small business from being unfairly treated by larger companies. Overall, it works to keep markets competitive and ensure that businesses play fair.

Link to the rest at The United States Department of Justice, Antitrust Division