Today the Federal Trade Commission (FTC) and 17 State Attorneys General (AGs) jointly filed their long-anticipated lawsuit against Amazon. The complaint alleges 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 in the online superstore and online marketplace services markets. In other words, the complaint alleges that Amazon’s pricing practices, their Fulfillment by Amazon offering, and Amazon Prime are anticompetitive.
Amazon responded to the announcement stating clearly that the FTC’s suit is a radical departure from the agency’s mission of protecting consumers and competition and that the lawsuit “is wrong on the facts and the law.” If successful, Amazon believes the suit would result in less product variety, higher prices, and increased delivery times for consumers. Thus, it is important to discuss the FTC’s conflicting arguments and the burdensome remedies that could very likely end up breaking up the Amazon marketplace.
The FTC’s case argues that Amazon has a monopoly in the online superstore and online retail markets, subjecting consumers to unfair pricing models and harming sellers by tying its Prime, logistics, and shipping practices together. This FTC argument hinges on three key prongs:
- Amazon’s algorithmic usage in its pricing policies for its physical and digital offerings, such as Amazon Basics and Amazon Prime, harms consumers.
- Amazon forces sellers to pay more for logistics and comply with certain requirements to be part of Prime 2-day delivery.
- Amazon search results self-preference Amazon’s own products.
Amazon’s practices and benefits for their customers are seen in other markets and companies. Walmart or Costco provide similar benefits for their customers. Essentially, the FTC is alleging that competitive practices that have been used by large retailers all across the economy constitute antitrust violations when used by Amazon.
U.S. digital markets have been characterized as having a robust competitive ecosystem, benefiting consumers with lower prices and incentivizing innovation. However, the FTC’s case would instead benefit big retailers and hurt consumers through breaking up Amazon Prime by allowing Prime-badged sellers to use any logistics and transportation service they desire, making it unrealistic for Amazon or the sellers to maintain the 2-day free shipping guarantee. In other words, the FTC case seems to protect competitors instead of incentivizing competition.
The AGs from DC and California, who did not join the current lawsuit, already failed with similar arguments against Amazon’s pricing policies. The FTC’s approach to these policies is just as mistaken as its predecessors. Amazon’s policies are not only a common business practice in the retail industry, but they are procompetitive as they incentivize robust competition between sellers and provide consumers with low prices for attractive offerings. Amazon shows the most competitive prices to consumers, giving priority to the lowest price over overcharged products. This benefits consumers and is common practice in retail.
DisCo has previously outlined the risks of certain legislative antitrust proposals, such as AICOA, that have a distinct antagonistic attitude towards certain firms. The FTC’s case has its own risks and legal issues that could harm Amazon’s popular customer-focused services. Furthermore, this case moves the FTC farther away from key foundations of antitrust enforcement such as objective economic analysis, consumer welfare, and the goal of protecting competition rather than protecting individual competitors from robust competition.
Another point of focus for the FTC, one of the cornerstones of Amazon’s services, is the Prime shipping guarantee. Amazon Prime’s 2-day delivery is what consumers want and have come to expect. In the past, Amazon has worked closely with sellers to integrate more of them into the Prime delivery system through offerings such as Fulfillment by Amazon (FBA). However, the company found that most sellers cannot, by themselves, reliably deliver on the 2-day Prime guarantee that customers value. That is why Amazon provides sellers with FBA at a rate 70% cheaper than other alternatives, so that while Amazon handles product storage, packaging, shipping, returns, and customer service, businesses can focus on growth and customers maintain the 2-day delivery they desire.
The allegations that Amazon’s self-preferencing practices are anticompetitive suggest misconceptions on how the retail market works, both online and offline. Supermarkets, shopping malls, and other similar businesses sell their products side-by-side with other competing products within their marketplace. It is a common business practice across multiple industries that promotes competition, instead of preventing it as the FTC claims. It is and has been a common business practice for a marketplace to sell its own products to compete with those from third-parties, and to prioritize their products in the view of consumers. This practice is not only procompetitive, but it hasn’t been given a second look by the FTC until now.
The primary issue though is the FTC’s proposed market definitions for Amazon’s alleged monopoly. The ‘online superstore’ and ‘online marketplace services’ markets the FTC defined in its complaint are misleading and more complicated than what the agency purports them to be. While Amazon holds approximately 38% of the retail e-commerce market (as of June 2022), in terms of the total retail market share Amazon (10%) actually sits behind Walmart (12%).
A more recent DisCo post touched on competition in the retail space, noting how many retailers are pursuing omnichannel strategies to keep their edge and better serve consumers. These businesses are not static; they operate in a highly competitive sector where entrants are increasingly compelled to innovate to meet customers’ evolving desires. The online retail market cannot be separated from the brick-and-mortar retail market – they overlap and compete with each other. It would be a mistake to analyze them differently and separately.
Similarly, online prices are not independent of those at physical stores — they are both related and interconnected. One cannot be understood without the other as they tend to increase or decrease in similar ways. As the analysis of retail markets should include both online and offline, the FTC’s overly narrow market definitions are mistaken and therefore Amazon does not have monopoly power.
It is also important to note how digital markets and the internet economy are fundamental for small businesses. They depend on digital markets to better promote and sell their products. There is a reason why most small business owners in 2022 used digital platforms to sell their products. If the FTC’s case was to succeed, Amazon’s marketplace would likely be closed for third-party sellers including small businesses. This would hurt those small companies the most as it would block an important source of output of their products.
The FTC is not specific about proposed remedies, which reflects the lack of clarity around the harm to competition alleged in the complaint. The FTC case, if successful, would break Prime’s free 2-day shipping and force Amazon to show higher prices. However, consumers’ opinion on Amazon differs from that of the FTC. They have rated Amazon as one of the most favored institutions in America. In Boston Consulting Group’s Most Innovative Companies 2023 report, Amazon was ranked third overall. While the FTC appears to see Amazon’s business practices as a risk to competition that demands government intervention, businesses and consumers alike see an innovative company that promotes competition and favors consumers.
Instead of incentivizing competition in the market, this lawsuit against Amazon seems to benefit certain competitors over competition itself — a conduct DisCo has previously referred to as ‘swampetition.’ Targeting some of America’s best loved services in one of our economy’s most innovative sectors will not stimulate competition in the digital economy – instead, it will have the opposite effect. The FTC’s mission is to preserve competition and protect consumers. However, the case against Amazon would lead to fewer products to choose from, higher prices for consumers, and reduced options.