The Federal Trade Commission, in collaboration with 17 U.S. states, filed a lawsuit against Amazon on Tuesday, marking a significant antitrust challenge against the e-commerce giant. This legal action has the potential to reshape the way Americans conduct online shopping, affecting a wide range of products, from household essentials like toilet paper to electronics.
The lawsuit, spanning 172 pages, represents the federal government’s most substantial effort to address concerns about Amazon’s monopoly in various segments of online retail. It accuses Amazon of maintaining its dominance by exerting pressure on third-party merchants and giving preferential treatment to its own services. As a result, consumers have been subjected to artificially inflated prices, with merchants prevented from offering lower prices on competing platforms.
The lawsuit also contends that Amazon’s prioritization of its products and increased advertising within its search results has created a less favorable shopping experience for consumers, effectively stifling competition from other retailers.
The lawsuit asserts that Amazon’s practices have allowed the company to seize control over a significant portion of the online retail economy, benefiting Amazon financially while harming both the millions of American households that regularly shop on the platform and the countless businesses that rely on Amazon as their primary sales channel.
This lawsuit brings Amazon’s extensive influence and $1.3 trillion valuation into the spotlight, following years of mounting scrutiny. Founded by Jeff Bezos in 1994 as an online bookseller, Amazon has evolved into a conglomerate with interests spanning various industries, including retail, entertainment, and internet infrastructure. Much of the company’s power originates from its online marketplace, renowned for its vast product selection and efficient delivery services.
Amazon’s dominance in online commerce has had a global impact, shaping the business strategies of merchants worldwide, influencing working conditions for over a million warehouse employees, and even prompting the U.S. Postal Service to deliver on Sundays.
Amazon now finds itself joining other tech giants like Google and Meta (formerly Facebook), which have also faced government antitrust challenges. The Department of Justice has been in the midst of a three-week antitrust trial against Google regarding its online search dominance, and the F.T.C. has previously filed an antitrust lawsuit against Meta.
This legal showdown pits Amazon directly against Lina Khan, the Chair of the Federal Trade Commission, who gained prominence for her 2017 paper arguing that existing antitrust laws inadequately addressed Amazon’s accumulation of power over its customers, competitors, and suppliers. Her paper sparked a national debate about the need to modernize U.S. antitrust laws to regulate tech giants more effectively.
Amazon, represented by David Zapolsky, its General Counsel, vehemently denied the allegations in the lawsuit, emphasizing that the F.T.C.’s focus had diverged significantly from its mission of safeguarding consumers and promoting competition. Zapolsky argued that if the F.T.C. prevailed, it would result in fewer product choices, higher prices, slower deliveries, and fewer options for small businesses – contrary to the intended goals of antitrust laws.
In its lawsuit, the F.T.C. specifically highlighted Amazon’s manipulation of the Buy Box – a crucial feature on its platform that encourages customers to make purchases. Amazon allegedly removed the “Buy Now” or “Add to Cart” buttons for products available at lower prices on other platforms, thereby discouraging merchants from offering competitive prices elsewhere. This practice forced sellers to keep prices high on competing websites to retain their sales on Amazon.
Furthermore, the lawsuit pointed out that Amazon effectively restricted merchants from selling on multiple platforms by mandating the use of its fulfillment and delivery services to access its lucrative Prime benefits, which boast millions of subscribers.
Despite increased regulatory scrutiny, Amazon has continued to expand its empire, acquiring companies such as One Medical, iRobot (the maker of Roomba), and the iconic movie studio Metro-Goldwyn Mayer. These acquisitions have augmented Amazon’s presence in various sectors, including healthcare, robotics, and entertainment.
The F.T.C. initiated its investigation into Amazon’s business practices in the summer of 2019, following numerous complaints and criticisms. President Biden appointed Lina Khan as F.T.C. Chair in June 2021, at which point Amazon had already provided the agency with documents and information related to the investigation. Khan established a new team to oversee the antitrust inquiry under her leadership.
The relationship between Amazon and the F.T.C. has been strained since Khan took office. Amazon sought to have her recused from antitrust matters involving the company shortly after her appointment. Additionally, Amazon attempted to prevent the F.T.C. from interviewing Jeff Bezos and Andy Jassy, the company’s CEO, in a separate investigation into Prime membership practices, accusing the agency of harassment. In June, the F.T.C. sued Amazon for allegedly violating consumer protection laws in connection with its Prime membership program.
With the F.T.C.’s lawsuit, Amazon joins other government agencies worldwide in grappling with the challenge of curbing the company’s influence on the global economy. In 2021, the District of Columbia’s Attorney General accused Amazon of price control on its platform, and though the case was initially dismissed, a similar case brought by California proceeded.
The F.T.C.’s legal action echoes accusations made by European Union regulators, prompting Amazon to make some changes to its practices in Europe, including displaying offers from more merchants on product pages and removing contractual language that prohibited merchants from offering discounts on other platforms.
In response to regulatory pressures, Amazon has also scaled back its private label brands and plans to reopen enrollment for a program allowing merchants to sell Prime-eligible products while handling their own deliveries, bypassing Amazon’s warehouses.
This lawsuit will definitely impact Amazon share price, but which way? Share your thoughts in comments.
