Summary Bullets:
• The US Federal Trade Commission (FTC), along with 17 state attorneys, is suing Amazon for what it terms monopolistic practices for what it terms have “inflated prices, degrade quality, and stifle innovation for consumers and businesses.”
• Though the lawsuit does not cite Amazon’s size, but rather its market dominance and practices, it doesn’t require too much imagination to read between the lines and think the FTC wants Amazon split up, with the obvious potential spin-out business being Amazon Web Services (AWS).
After a lengthy investigation, the FTC and 17 state attorneys filed a lawsuit against Amazon claiming it’s the retail giant’s “illegal, exclusionary conduct makes it impossible for competitors to gain a foothold.” In a press release announcing the suit, the FTC goes on to call out specific practice as monopolistic and harmful to both businesses and consumers. The FTC specifically calls out Amazon’s search feature, which the agency says is “degrading the customer experience” by switching out “relevant, organic search results with paid advertisements.” The agency claims this hurts both customers frustrated with “junk ads” and sellers who are trying to promote their own products by limiting the return on their advertising investment.
The agency also accused Amazon of running up costs for sellers who are reliant on the company to distribute their products. The claimed fees include monthly costs for each good sold and advertising fees. The FTC says these fees could force sellers to pay nearly 50% of their total revenues to Amazon. The agency says increased prices to compensate for these costs will then be passed on to shoppers.
FTC Chair Lina Khan has had Amazon in her sights since she outlined her case against Amazon’s anti-competitive practices in a 2017 Yale Law Journal article. Khan has prioritized taking big tech to task for anti-trust activities with attempts to block Meta Platforms’ $400 million acquisition of virtual reality vendor Within and Microsoft’s $70 million purchase of gaming company Activision Blizzard. Judges ruled in favor of the tech vendors in both cases.
Amazon shot back at the FTC with a statement from David Zapolsky, the company’s senior vice president, global public policy and general counsel. Zapolsky says that while he respects the consumer protection role the FTC has traditionally played, “it appears the current FTC is radically departing from that approach, filing a misguided lawsuit against Amazon that would, if successful, force Amazon to engage in practices that actually harm consumers and the many businesses that sell in our store.”
Zapolsky goes on the refute the FTC claims, insisting that its practices keep prices down for consumers and provide important features for sellers. He adds the FTC’s claim that Amazon strong-arms sellers to use its services “is simply not true.” Amazon notes that sellers can choose to use Amazon advertising and logistics services or not.
If the aim is to break up the vendor and spin out its AWS unit, the case could negatively effect pricing and product options for consumers. In 2022, Amazon’s retail businesses operated at a loss of $10.6 billion. By comparison, AWS generated over $80 billion in revenues and just under $23 billion in operating profit. Without that subsidy, its retail business may hike prices and reduce product options.