Written by Swasti Mehta for the Open Section.
There is a high likelihood that you have used Amazon at least once in the past month. Online shopping has increased expotentially over the years and therefore, the odds that someone has used the platform recently is rather high. In fact, Amazon ensures that this is the case. Whilst it can be argued that this gives Amazon a competitive edge, Amazon maintains their market dominance through the illegal measures they implement. Amazon exploits sellers and eliminates competition.
Amazon's anticompetitive conduct has impacts on you too; read on to see how.
On 26th September 2023, the U.S. Federal Trade Commission along with 17 American states sued Amazon.com, Inc.[1] — the most (in?)famous — online marketplace to purchase, as the brand logo suggests, everything from A to Z. Superficially, it is all Amaze-on, but a more profound cognisance of its internal functioning and tactics would ostensibly reveal that there is instead A-maze-on.
The online retail and technology company has been alleged of multiple anticompetitive conducts, the most significant one being the ‘monopolist’ nature of its presence in the relevant market. One inevitably wonders, should having a monopoly in a market per se attract antitrust regulators? Is it a vicarious connotation that being the so-to-speak, ‘paradigm’ of your relevant market is anti-competitive? It would not seem wholly ludicrous to assume so considering the recent lawsuits against several huge companies such as Google and Meta and indeed, Amazon. The major ‘hallmark’ of anticompetitive conduct is not simply maintaining a monopoly, but rather maintaining dominance through illegal means and/or its misuse.
Before elucidating upon the horrifying and dispiriting realities outlined in the lawsuit, which was made public by the FTC[2], I would like to engage with the elephant in the room: ‘What exactly is antitrust/competition law?’ The laws under this category aim to prevent unscrupulous activities of the parties operating in a market such as cartel agreements, dominance/monopoly, anticompetitive mergers, and drafting unfair terms of contract, among others (one can fathom how ‘wild’ the imagination of businessmen can run to achieve the maximum profit the fastest, all while wearing the masquerade of innocence). The minutiae of such laws may differ between countries, but the undercurrent remains the same: facilitating a market that induces healthy competition and protects consumer rights; one that is adept at supplying high-quality goods at affordable and/or competitive prices.
Competition Law enforcement in the EU is reflected in Article 101(2)[3] and Article 102[4] of the TFEU. Article 101(1) lays down the kinds of agreements between undertakings that are prohibited in the internal market of the EU such as those which ‘directly or indirectly fix purchase or selling prices or any other trading conditions’ (Article 101(1)(a)) and those which distort competition through an agreement to ‘share markets or sources of supply’ (Article 101(1)(c)). Furthermore, affirming the contents of Article 101(1), Article 101(2) gives it a regulatory effect by declaring all agreements in violation of the former ‘automatically void’.
In the UK, anti-competitive regulations are covered under Chapters I and II of the ‘Competition Act, 1998’[5]. Section 2 of Chapter I, resonates with Article 101 TFEU while prohibiting agreements that ‘prevent’, ‘restrict’, or ‘distort’ competition. Chapter II has purview over thwarting abuse of its dominant position by an enterprise in the relevant market.
For this article, I would briefly present the Antitrust Laws in the USA since the lawsuit had been filed under the jurisdiction of the United States District Court Western District of Washington. The Antitrust division of the US Department of Justice enforces the federal antitrust and competition laws. The statutes prohibiting anti-competitive conduct are - The Sherman Antitrust Act, The Clayton Act, and the Federal Trade Commission Act[6] (Section 5(a)[7]).
The lawsuit against Amazon was filed under 15 U.S.C. § 53(b) and 15 U.S.C. § 26 of the FTC Act which bestows upon the Commission the discretion to grant a temporary restraining order or a preliminary injunction whenever it reasonably believes there has been or might be a potential violation of any provisions enforced by it. Amazon has been alleged to violate section 5(a)[8] of the FTC Act, Section 2 of the Sherman Act[9], and several state competition and consumer protection laws for unlawfully maintaining a monopoly and exploiting its sellers through unlawful practices and terms of contract.
Exploitation of sellers
The fees Amazon charges from the retailers selling their goods through it are unfairly high and take away close to half of their total earnings making them barely incur any profits; only Amazon profits. Mainly four kinds of ‘fees’ are charged by Amazon which can arguably classify as extortion. The matter remains reasonable to the extent of charging a ‘selling fee’ and ‘referral fee/commission’. Scepticism is invoked when it comes to fees for FBA (Fulfilment by Amazon) services and advertising, which although not requisite, are as ‘optional’ as not surrendering your wallet to a robber holding a gun to your head.
Furthermore, Amazon has a mechanism to check if the sellers contracting with the company are selling the same goods cheaper somewhere else. If Amazon does find a seller doing so, they are severely ‘punished’. Previously, the contractual agreement had explicit requirements prohibiting this, but these (codified) terms were obliterated when it triggered an antitrust investigation in the EU. In lieu of contractual obligations, implicit and vicarious prerequisites were established to qualify to effectively sell through Amazon along with ‘punishments’ on violation of prescribed conduct. These include, among others, removing their goods from the ‘buy box’ which significantly reduces sales; putting their products so far down that they are practically invisible; the worst being absolute banishment from Amazon.
Moreover, ‘Prime Eligibility’ is another means to extract money from sellers. This is not a compulsory condition but on the tacit knowledge of losing potential sales by avoiding purchasing it. Amazon and sellers, both know that most sales proceed through prime-eligible sellers.
The FBA scheme by Amazon for its sellers deceptively and vicariously prevents multi-homing -- the process of vendors retailing their goods through multiple platforms. The compulsion to subscribe to FBA by making it an eligibility requirement for obtaining a ‘prime badge’ results in vendors opting not to multi-home. Under such conditions, multi-homing would mean being affiliated to multiple independent fulfilment providers which increases costs for sellers.
You may wonder, considering the smorgasbord of issues curated by Amazon, ‘Why do sellers continue their contracts?’ Additionally, ‘Why is Amazon not apprehensive of losing its vendors?’ To these questions, the vendors have replied with: “We have nowhere else to go and Amazon knows it.”
Eliminating competition
In a healthy market, the exploitative conduct of Amazon would have unequivocally led to vendors switching to alternatives. But Amazon has defenestrated such an opportunity through its practices. The minimum price of most goods is found on Amazon since sellers are obligated to not sell it cheaper on another platform. Furthermore, Amazon has acquired vast user data to personalise customer experience which inherently translates into an obstacle for new entrants.
Jeff Bezos is reportedly cognisant that online marketplaces need ‘scale’ and ‘volume’ to function. This knowledge is put to anti-competitive use by Amazon by denying the rival firms exactly that. The conundrum of needing more customers to attract sellers, and needing more sellers to attract customers, persists. This insulates the market against new entrants.
Moreover, Amazon has reportedly initiated ‘Project Nessie’ - an extremely surreptitious tactic which through its algorithm has led to massive profits for the company.
Increasing profits at the cost of consumer satisfaction
Goods sold through Amazon are the ‘cheapest’, but they are not sold at the ‘minimum price’ possible. By making it virtually impossible for sellers to sell goods through any other online marketplace and increasing the costs incurred by the vendors, Amazon artificially increases the price of goods. To profit from sales, a price increase is the only judicious option left for sellers, but it renders the market inefficient and unhealthy.
The advertisements on the ‘results’ page have increased, and the results produced are not organic. It is flooded with recommended goods which are mostly Amazon’s private labels. The badges on the recommended products are not genuine or based on quality making it anticompetitive. Although there has been a decline in sales due to inconvenience caused by advertisements, Amazon seems to be profiting from it.
When it comes to Amazon Prime membership, Amazon has an ‘all-or-nothing’ policy that strategically makes consumers purchase all its components. Subsequently, it coerces consumers into preferring the company over others. A former employee has reportedly stated: “…was never really about the seventy-nine dollars. It was really about changing people's mentality so they wouldn't shop anywhere else." Ironically, Amazon claims that no one can prosper in both businesses such as OTP platforms along with a thriving online marketplace, yet it is succeeding in doing exactly that. This insinuates potential unlawful means being used by the company which is also now planning on selling cars online next year onwards!
The realities that have surfaced through the lawsuit are sickening, to say the least. But, at the end of the day, we all know: we have ‘nowhere else to go’ either.
References
[1] Federal Trade Commission. ‘FTC sues Amazon for Illegally Maintaining Monopoly Power’ (Press Release, September 26, 2023)
[3] Consolidated version of the Treaty on the Functioning of the European Union - PART THREE: UNION POLICIES AND INTERNAL ACTIONS - TITLE VII: COMMON RULES ON COMPETITION, TAXATION AND APPROXIMATION OF LAWS - Chapter 1: Rules on competition - Section 1: Rules applying to undertakings - Article 101 (ex Article 81 TEC)
[4] Consolidated version of the Treaty on the Functioning of the European Union - PART THREE: UNION POLICIES AND INTERNAL ACTIONS - TITLE VII: COMMON RULES ON COMPETITION, TAXATION AND APPROXIMATION OF LAWS - Chapter 1: Rules on competition - Section 1: Rules applying to undertakings - Article 102 (ex Article 82 TEC)
[5] (1998 c 41)
[7] 15 U.S.C. § 45(a)
[8] 15 U.S.C. § 45(a)
[9] 15 U.S.C. § 2
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