FTC sues Amazon for operating unlawful online retail monopoly

inside Amazon warehouse — Image by Mike Segar | Reuters

The US Federal Trade Commission filed suit against Amazon.com, claiming the massive shopping platform has been using a multitude of shady tactics to strategically control the online marketplace, leading to an anti-competitive monopoly of power against its rivals.

The FTC filed the lawsuit Tuesday in the Western District Court of Washington, along with 17 US State Attorney General's offices.

“A single company, Amazon, has seized control over much of the online retail economy,” the 172-page complaint said.

Labeling the online retail and technology giant a “monopolist,” the lawsuit accuses Amazon of exploiting tens of millions of customers who shop on the platform, as well as the thousands of businesses who sell to them.

The anti-trust and consumer protection agency listed a plethora of illegal conduct Amazon had engaged in during the four-year investigation, charging the online retailer of stifling both competition and innovation across a huge swath of the online economy.

“Amazon… uses its power to hike prices on American shoppers and charge sky-high fees on hundreds of thousands of online sellers,” said John Newman, Deputy Director of the FTC’s Bureau of Competition.

“Seldom in the history of US antitrust law has one case had the potential to do so much good for so many people,” Newman said.

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Some of the more egregious actions Amazon is accused of include overcharging sellers, degrading quality for shoppers, preventing rivals sellers from lowering prices, and biasing the platform’s online search results.

For example, Amazon seller fees range from advertising fees to monthly charges for each item sold – adding up to nearly 50% of a seller's profit paid to the online shopping behemoth.

Furthermore, the lawsuit states that sellers were often punished by Amazon for offering lower prices on similar Amazon brand products by “burying the other products so far down on Amazon’s search results that they become effectively invisible.”

The company is also accused of degrading the customer experience by “replacing relevant, organic search results with paid advertisements and junk ads,” which also defrauded sellers expecting a return on advertising purchases.

The FTC and the attorney generals are seeking a permanent injunction that would prohibit Amazon from continuing its illegal conduct in an effort to break up its monopoly of power, thereby evening the playing field among competitors.

Amazon responded to the FTC lawsuit, saying it was misguided 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.

A long time coming

After years of complaints, critics say Amazon’s nationwide network of delivery vans and warehouses should be separated and sold off from Amazon's web business.

Amazon joins a list of other tech giants who have been accused by US lawmakers of abusing their powers to strategically control search engines, social media, and online retailing – essentially becoming the gatekeepers of what information is being fed to online consumers and then profiting off the control.

"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," said FTC Chair Lina Khan.

Khan had been chomping on the bit to crack down on the Seattle-based company since her days as a law student writing about the threat of an Amazon monopoly in "The Yale Law Journal."

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"No corporation has ever centralized this much power across so many crucial sectors," said Stacy Mitchell of the Institute for Local Self-Reliance.

Mitchell and the Institute have also pushed for the US government to take action against Amazon's corrupt practices.

"Left unchecked, Amazon’s power to dictate and control threatens the rule of law and our ability to maintain open, democratically governed markets," Mitchell said.

"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, chairman at the Boston-based private equity firm Great Hill Capital.

Amazon was founded in 1994 and is now worth more than $1 trillion.

The seventeen states joining the FTC lawsuit include Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, and Wisconsin.

Federal anti-trust lawsuits were also filed against Alphabet's Google and Meta Platforms' Facebook earlier this year.