 "Why the US has sued Amazon for ‘illegal monopoly’")
The United States has filed a historic anti-trust lawsuit against Amazon. The lawsuit against the $1.3 trillion dollar company – which rose from humble beginnings in a garage in 1994 to a tech titan – from the US Federal Trade Commission was a long time in the making. US FTC chair Lina Khan tweeted:
1. Today @FTC and 17 state AGs filed a lawsuit detailing how Amazon uses punitive & coercive tactics to unlawfully maintain its monopolies. Amazon is exploiting its monopoly power to enrich itself while raising prices & degrading service for its customers.https://t.co/7NiPGxx2CU
— Lina Khan (@linamkhan) September 26, 2023
The 172-page complaint, which adds to a slew of legal challenges exposing the retail giant to billions of dollars in potential damages, also comes in the backdrop of Big Tech facing a backlash from lawmakers and scepticism from the general public. But why has the FTC filed an anti-trust lawsuit against Amazon? And what happens next? Let’s take a closer look: Why is the FTC suing Amazon? The FTC has accused the company of overcharging its sellers, inflating online prices and stifling competition. In essence, it claims that Amazon is a monopoly and that it misuses its powers. As per Bloomberg, the FTC suit charges the company with compelling Amazon sellers to use its in-house services – including vans and warehouses – in exchange for plum listings on its website. The agency quotes one seller as saying in its suit:
“We have nowhere else to go and Amazon knows it”.
As per Forbes, the FTC accused Amazon of charging sellers almost half their total revenue. It says the practice “not only sellers, but also shoppers.” “Together, this self-reinforcing course of conduct blocks every important avenue of competition,” the complaint states. “With its monopoly power cemented, Amazon is now extracting monopoly profits without denting — and instead while growing —its monopoly power.” Molson Hart, who sells a building toy set on the website, told Bloomberg that Americans pay higher prices for goods as a result of the company’s tactics. “The fees and advertising costs to sell on Amazon are higher than other marketplaces,” Hart said. “Because Amazon is by far the largest sales channel for all sellers, sellers must keep their prices high off Amazon to ensure they can continue to sell on Amazon.” The FTC also accuses the company of penalising those that using offering better prices on the website of its competitors. The FTC said the company did this by making it difficult for consumers to find the seller on Amazon’s platform. Amazon is also accused of pushing its own products over that of its competitors. [caption id=“attachment_13176622” align=“alignnone” width=“640”] The FTC said that it was asking the court to issue a permanent injunction ordering Amazon to stop its ‘unlawful conduct’.[/caption] “Amazon is a monopolist and it is exploiting its monopolies in ways that leave shoppers and sellers paying more for worse service,” Khan was quoted as saying by Bloomberg. “The stakes here are high. There is immediate harm that is ongoing. Sellers are paying $1 of every $2 to Amazon.” The lawsuit comes after years of accusations that Amazon and other tech giants have abused their dominance of search, social media and online retailing to become gatekeepers on the most profitable aspects of the internet. The need to take action against Big Tech has been one of the few ideas that Democrats and Republicans have agreed on, and the FTC chief has been particularly concerned about Amazon’s power. The lawsuit, which was joined by 17 state attorneys general, follows a four-year investigation and federal lawsuits filed against Alphabet’s (GOOGL.O) Google and Meta Platforms’ (META.O) Facebook. The FTC said that it was asking the court to issue a permanent injunction ordering Amazon to stop its unlawful conduct. The lawsuit was filed in federal court in Seattle, where Amazon is based. “Left unchecked, Amazon will continue its illegal course of conduct to maintain its monopoly power,” the FTC said in its complaint which asked the court “to put an end to Amazon’s illegal course of conduct, pry loose Amazon’s monopolistic control, deny Amazon the fruits of its unlawful practices, and restore the lost promise of competition.” The FTC complaint asked for the court to consider “any preliminary or permanent equitable relief, including but not limited to structural relief, necessary to restore fair competition.” Structural relief in antitrust jargon generally means a company sells an asset, such as a part of its business. Khan, asked about the idea of breaking up Amazon at a press briefing, declined to discuss it.
“At this stage, the focus is really on liability,” she said.
Khan also added that Amazon had used illegal tactics to fend off companies that would have risen to challenge its monopoly. “Amazon is now exploiting that monopoly power to harm its customers, both the tens of millions of families that shop on Amazon’s platform and the hundreds of thousands of sellers that use Amazon to reach them,” she said. Interestingly, Khan, while a law student, wrote about Amazon’s dominance in online retailing for “The Yale Law Journal”. She was also on the staff of the House committee that wrote a report issued in 2020 that advocated reining in four tech giants: Amazon, Apple (AAPL.O), Google and Facebook. In other antitrust trials, the court first establishes that the company broke the law and then, if needed, discusses how to remedy that. Amazon said that the FTC lawsuit was wrongheaded and would hurt consumers by leading to higher prices and slower deliveries. “The practices the FTC is challenging have helped to spur competition and innovation across the retail industry, and have produced greater selection, lower prices, and faster delivery speeds for Amazon customers and greater opportunity for the many businesses that sell in Amazon’s store,” said David Zapolsky, Amazon’s general counsel. In a blog post, the company noted that it had 500,000 independent sellers on the platform. Amazon shares, which were down 3.2 per cent before the lawsuit was announced, traded down four per cent in late afternoon trade. What do experts say? Some say this could result in a sea-change in online shopping. A piece in Investing.com noting the ‘substantial governmental effort’, said the lawsuit would be followed closely by Amazon’s competitors as it could provide a glimpse of things to come.
Others see upside from the lawsuit.
Impact Shorts
View All“Either way, the shareholders win. If FTC loses its status quo, if the company breaks up, the sum of the parts is greater than the whole as the AWS (cloud) business will command a very high multiple. Analysts will figure this out soon, but for now it’s ‘shoot first, ask questions later,’” said Thomas Hayes, chair at Great Hill Capital. The case, which was filed in the US District Court for the District of Columbia, was assigned to John Coughenour, who was nominated to the bench in 1981 by Republican President Ronald Reagan. Amazon’s critics welcomed the lawsuit. The Guardian quoted Sacha Haworth, the executive director of the non-profit Tech Oversight Project, as saying, “For far too long, Amazon has manipulated the online marketplace to position itself as the world’s largest digital retailer, and in the process, they jacked up prices, stole competitors’ products, and gate-kept consumers from better products.” “No corporation has ever centralized this much power across so many crucial sectors. Left unchecked, Amazon’s power to dictate and control threatens the rule of law and our ability to maintain open, democratically governed markets,” said Stacy Mitchell of the Institute for Local Self-Reliance, which has pushed for the government to act against Amazon. The federal complaint follows other actions the FTC has taken against Amazon in the past few months. In June, the agency sued the company, alleging it was using deceptive practices to enrol consumers into Amazon Prime and making it challenging for them to cancel their subscriptions. Amazon disputes the allegations. In late May, the company agreed to pay a $25 million civil penalty to settle allegations that it violated a child privacy law and misled parents about data deletion practices on its popular voice assistant Alexa. During the Trump administration, which ended in 2021, the Justice Department and FTC opened probes into Google, Facebook, Apple and Amazon. The Justice Department has sued Google twice - once under Republican Donald Trump regarding its search business and a second time on advertising technology since Democratic President Joe Biden took office. The FTC sued Facebook during the Trump administration and Biden’s FTC has pressed forward with the lawsuit. With inputs from agencies
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