By Josh Withrow, R Street
The Federal Trade Commission (FTC) has finally released its long-anticipated antitrust complaint against Amazon, alleging that the online retail giant has abused its size and power to engage in “exclusionary conduct that prevents current competitors from growing and new competitors from emerging.” To remedy these perceived harms to competition and innovation, the FTC seeks penalties up to and including “structural relief”—that is, breaking up and spinning off parts of the company.
Misdefining the Relevant Market
The first major problem with the complaint is its definition of the relevant market in which Amazon’s retail services operate: “the online superstore market and … the market for online marketplace services.” They narrow this definition to a market that only includes U.S. sales by Amazon, eBay, Walmart and Target. By measuring gross merchandise value, the FTC claims that Amazon represents a monopoly share (77 percent) of this market. Meanwhile, the complaint explicitly disregards competition from most brick-and-mortar retailers, which is an especially egregious omission in an economy where the ubiquitous buzzword in retail is “omnichannel”—a blend of physical and digital means of reaching customers. This definition also entirely disregards any online store that has a broad range of offerings but adopts a different model for appealing to customers, such as Shopify, or the recently ascendant discount sellers Temu and Shein.
Dubbing Amazon a monopoly also ignores that even among online retailers, Amazon represents only roughly 40 percent of the market, and only about 10 percent of U.S. retail sales overall. Compared to this reality, the FTC’s manipulated market definition should not persuade a judge that Amazon possesses a true monopoly in any retail market. However, that still leaves the FTC’s specific allegations of anticompetitive conduct.
The FTC’s most serious accusation is that Amazon’s contracts with its third-party sellers, which penalize those sellers if they offer the same goods at lower prices on other platforms, cause higher prices for consumers both on Amazon and across the economy. This kind of arrangement, which is widespread among online platforms, has attracted skepticism from competition regulators both here and in Europe, but the economic evidence suggests they may actually be pro-competitive.
Notably, Amazon still allows sellers who do not abide by these price agreements on their platform, but they penalize them in various ways, such as lowering their priority in search results and denying them access to the “Buy Box,” which the FTC notes drastically reduces sales. While this may seem anticompetitive at first glance, the alternative the FTC implies would force Amazon to host sellers who offer higher prices in the Buy Box, and also to force Amazon to promote sellers on its own platform who are undercutting them elsewhere.
From the platform perspective, these agreements both help Amazon remain competitively priced and encourage further investment in the platform, to the benefit of the sellers who use it—minus those sellers who don’t follow the rules. It is difficult to see how consumers suffer from such an arrangement, especially given that nearly every product one can find on Amazon can be found through other retailers.
The second major allegation in the FTC complaint involves how Amazon ties access to its “fulfilled by Amazon” service to participation in Amazon Prime. Third-party sellers who join fulfillment via Prime do pay a steep price—up to a 45 percent fee for some categories of product. For this cost, though, they receive the boost in access to customers and sales that comes with Prime’s 200 million subscribers and free two-day (or less) shipping.
The complaint alleges that sellers “could provide comparable or better service” if they were more easily able to participate in Prime without having to submit their products to Amazon’s fulfillment services. In reality, however, Amazon tried to allow a “Seller Fulfilled Prime” option for several years prior to the COVID-19 pandemic, but quickly found that in many cases sellers were not able to honor Prime’s shipping guarantees. Delayed shipping and angry customers were presumably not helpful to Amazon’s brand reputation and Amazon greatly restricted the seller fulfillment track in 2020, although it is set to re-launch in 2023, perhaps in response to this lawsuit.
The last and least compelling of the FTC’s major accusations is that Amazon degrades the quality of its offerings to consumers by selling sponsored placement priority in its search results, which the FTC’s press release characterizes as “junk ads.” While this might create some minor inconvenience to a consumer in the form of having to scroll through clearly marked sponsored products, this practice is functionally no different than any brick-and-mortar retail store that charges companies extra for priority shelf placement.
A Solution in Search of a Problem
The FTC complaint is insistent that the case against Amazon addresses harms to both consumers and competition, but it is short on actual evidence of consumer harm. Although the complaint repeatedly claims that Amazon has caused prices for consumers to increase, it offers little to no actual evidence, whereas data has continued to show that e-commerce prices have remained lower and much more resistant to inflation than products offline.
Somewhat more compelling is the potential for Amazon to harm sellers by the conditions it places upon access to its popular online platform and logistics services. Even here, many of the accusations of anticompetitive behavior involve competitive conduct that is widespread across retail, such as product self-preferencing, sponsored product placement and pricing agreements.
The FTC’s expectation here appears similar to that of the legislative efforts to dictate the conduct of app stores. Once a company has built a platform that attracts a significant quantity of third-party business users, the logic appears to be that attempts to incentivize those sellers to remain on their platform instead of others will be deemed anticompetitive. This, though, reduces the incentive of an Amazon, or Google or Apple, to continue to build and invest in platforms if they cannot run them competitively.
It may be that some of the fees or contractual obligations the platforms demand to use their service seem onerous to some of the businesses that sell through them; on the other hand, without the existence of a sales platform like Amazon, many such companies would not have been able to reach a wide audience and profit in the first place. Ironically, if the FTC’s arguments were to succeed in court, Amazon’s best option to comply might be to cease allowing non-Prime sellers access to their platforms altogether, which would neither benefit Amazon, nor the sellers who would suddenly lose access to their customer base, nor the customers who would have reduced variety and choice.
In bringing this case against Amazon, the FTC seems to have abandoned any pretense of considering economic trade-offs and who exactly their suit is supposed to benefit. The unfortunate lesson if the case were to succeed would seem to be that the reward for building a sufficiently large, popular, innovative online platform is to be deemed a monopolist and potentially broken up. The welfare of consumers, and the consequences of disrupting the beneficial services that made Amazon so popular in the first place, is hardly to be found in the FTC’s analysis.
Josh Withrow is a fellow in Technology and Innovation at R Street.