In September 2023, the Federal Trade Commission (“FTC”) initiated an antitrust suit against Amazon, accusing the company of illegally maintaining a monopoly in the “online superstore” and “online marketplace services” markets.[1] But what exactly does the FTC allege Amazon is doing to illegally maintain a monopoly?
Exclusionary Anti-Discounting Conduct with third-party sellers
First, the FTC claims Amazon punishes third-party sellers for offering lower prices on other websites.[2] Third-party sellers sell directly to consumers on Amazon Marketplace.[3] Amazon uses their Competitive Monitoring Team to detect price changes for thousands of products that third-party sellers sell anywhere on the internet.[4]
Previously, Amazon made every seller agree to a price parity provision that prevented them from offering lower prices elsewhere.[5] Amazon stopped including these provisions in their contracts in 2019, but increased the use of Select Competitor – Featured Offer Disqualification (SC-FOD).[6] SC-FOD is an algorithm that prevents a seller from “winning the Buy Box” if it finds that the seller sells that product for less on a Select Competitor’s website.[7] When a seller “wins the Buy Box,” they automatically get chosen when a customer clicks the “Add to Cart” or “Buy Now” buttons if the product has multiple sellers.[8] Ninety-eight percent of purchases are made using these buttons.[9] Amazon has greatly expanded its list of online retailers that are considered Select Competitors since 2019.[10] The FTC also claims that Amazon is punishing these sellers by intentionally making it difficult for customers to find products that do not have a Buy Box.[11]
Even though Amazon no longer has a contractual price parity provision for all sellers, it still has strict limitations for sellers in its Amazon’s Standards for Brands (ASB) and Customer Experience Ambassadors (CXA) programs.[12] ASB and CXA sellers have ninety-five percent and ninety-eight percent price parity contractual requirements, respectively.[13] This means sellers in these programs must have their products priced as high or higher on other websites ninety-five percent and ninety-eight percent of the time.[14] It is also important to note that neither of these programs are optional and failure to meet these requirements can get sellers removed from Amazon’s Marketplace.[15] The FTC believes this makes sellers refrain from using other websites altogether because the website may change the price, consequently resulting in their removal from Amazon.[16]
Amazon’s first-party anti-discounting algorithm
Next, the FTC alleges Amazon uses similar anti-discounting mechanisms to prevent competitors from undercutting their retail or first-party products.[17] Amazon Retail includes products that Amazon resells from wholesale suppliers and its private label goods such as Kindle, Ring, Amazon Basics, and Revly.[18] The complaint describes Amazon’s “game theory approach” used to ensure the company never change prices before a competitor;[19] Amazon finds the lowest price of a competitor and automatically changes their own prices immediately after.[20] This deters Amazon’s competitors from using lower prices to increase market share.[21]
Coercing Sellers to use Amazon’s fulfillment service
Third, the FTC takes issue with Amazon’s fulfillment service, Fulfillment by Amazon (“FBA”), and Amazon Prime. Amazon generally requires sellers use FBA for a product to be eligible for Amazon Prime.[23] The FTC views Prime eligibility as essential to making significant sales.[24] In their view, this requirement impedes sellers from selling on multiple websites because they must use Amazon’s fulfillment service anyways.[25] The FBA requirement also limits competition from independent fulfillment providers according to the FTC.[26]
Project Nessie
Amazon’s Project Nessie is an algorithm that can predict the likelihood that their competitors would copy a price increase.[27] When competitors were likely to follow, Amazon would raise and sustain their prices accordingly.[28] This has reportedly generated over $1 billion in profits.[29] Amazon does not currently deploy Project Nessie, but it was still mentioned in the complaint.[30]
Critisism
The FTC has faced a lot of criticism as to the strength of its argument that Amazon is a monopoly.[31] Further, if Amazon is not a monopoly, most, if not all, of the above practices are legal. There are also concerns that the FTC complaint could unfairly advantage Amazon’s competitors, like Walmart and Target.[32] Regarding FBA, Amazon’s fulfillment might actually be cheaper and more efficient than its competitors.[33] Moreover, it is concerning that the FTC does not specify what percentage of sellers are dissatisfied with Amazon’s fulfillment. Some have argued that consumers are actually benefited from Amazon with lower prices and faster delivery.[34] While consumers and Marketplace sellers may see these benefits, the FTC does not.
[1] Press Release, Fed. Trade Comm’n, FTC Sues Amazon for Illegally Maintaining Monopoly Power (Sept. 26, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-sues-amazon-illegally-maintaining-monopoly-power.
[2] Complaint at 85, FTC v. Amazon, W.D. Wash. Case No. 2:23-cv-01495-JHC (Nov. 2, 2023).
[3] Id. at 24.
[4] Id. at 87.
[5] Id. at 88.
[6] Id. at 89.
[7] Id.
[8] Complaint at 28-29, FTC v. Amazon, W.D. Wash. Case No. 2:23-cv-01495-JHC (Nov. 2, 2023).
[9] Id. at 29.
[10] Id. at 90.
[11] Id.
[12] Id. at 91, 95.
[13] Id. at 92, 94
[14] Complaint at 92, 94, FTC v. Amazon, W.D. Wash. Case No. 2:23-cv-01495-JHC (Nov. 2, 2023).
[15] Id. at 93, 95.
[16] Id. at 98.
[17] Id. at 100.
[18] Id. at 23.
[19] Id. at 100.
[20] Complaint at 101, FTC v. Amazon, W.D. Wash. Case No. 2:23-cv-01495-JHC (Nov. 2, 2023).
[21] Id.
[22] Id. at 106.
[23] Id. at 107.
[24] Id. at 108.
[25] Id. at 107.
[26] Complaint at 107, FTC v. Amazon, W.D. Wash. Case No. 2:23-cv-01495-JHC (Nov. 2, 2023).
[27] Id. at 124.
[28] Id.
[29] Id. at 125.
[30] Id. at 123.
[31] See, e.g., Richard J. Pierce, Jr., FTC v. Amazon Should Be Khan v. Khan, Yale J. Regul.: Notice and Comment (Sept. 29, 2023), https://www.yalejreg.com/nc/ftc-v-amazon-should-be-khan-v-khan-by-richard-j-pierce-jr/; Jeff Jacoby, Amazon is Huge, But it’s No Monopoly, Bos. Globe (Oct. 22, 2023), https://www.bostonglobe.com/2023/10/22/opinion/jeff-jacoby-amazon-monopoly-ftc-lina-khan/; Max Gulker, The FTC Claims Amazon is a Monopolist but Misunderstands Online Retail, Reason Found. (Oct. 13, 2023), https://reason.org/commentary/the-ftc-claims-amazon-is-a-monopolist-but-misunderstands-online-retail/.
[32] Ted Bolema, The FTC’s Case Against Amazon Could Set a Dangerous Precedent–and Benefit Other Retailers, Fortune (Sept. 26, 2023), https://fortune.com/2023/09/26/ftc-case-amazon-precedent-benefit-retail-tech-ted-bolema/.
[33] Pierce, Jr., supra note 30.
[34] Bolema, supra note 31.
