FTC and States Sue Amazon

Lina Khan and the Federal Trade Commission have finally laid charges against Amazon in court.

Amazon’s ongoing pattern of illegal conduct blocks competition, allowing it to wield monopoly power to inflate prices, degrade quality, and stifle innovation for consumers and businesses. FTC

The question is, will anything come of this?

Is Amazon a monopoly? Do sellers not have other channels that they can sell on? Yes, but Amazon is the best converting and most profitable for sellers. Nothing in business is free, but to state that Amazon takes 50% of every Dollar sold on its platform feels like a generalization of epic proportions. The irony is that when startups start selling their goods wholesale to retailers like Walmart and others - they get fees charged for being stocked inside retail locations.

Stifle innovation? Is the opposite false in that Amazon has forced its competitors to improve their services to create similar customer experiences? Prime is a loved program by Amazon, ensuring other retailers create better loyalty programs. Walmart+ seems to be helping Walmart offer value to customers. Is the argument that because Prime is too good, it needs to be made an example of. I don’t condone dark patterns, but has any regulator seen Grove Collaborative’s behavior when putting an item in their shopping cart?

Amazon is accused of raising prices and using algorithms to track pricing on other platforms. If the item is found at a lower price somewhere else - the buy box is then suppressed. Newsflash - the entire sector uses technology to look at pricing from competing platforms and either change pricing or keep it as is. If items are found at lower prices elsewhere in the retailer - do those items not get shown at a different location at a retailer? Do brands not test price elasticity hundreds if not thousands of times per month? How is that different from what Amazon has done? Amazon has repeatedly been found to be more expensive when compared to other platforms/retail in the past.

Degrade quality? Is this a thinly veiled attempt to showcase Amazon’s private label business? Why is Amazon’s private label business predatory when retailers such as Walmart, Costco, and others do exactly the same thing? Private labels have been around retail for decades. Amazon has closed down many of these brands but quality is a problem in all of retail, not just on Amazon.

Amazon has digitized what happens inside retail, but now it stifles innovation for consumers and sellers.

We are about to see a two to three-year court case where Amazon and the regulators will discuss its operations. Has anyone asked consumers how they feel if they wait longer for deliveries, lose the benefit of Prime memberships and its offering?

Is Amazon a monopoly?
To some extent, this is the wrong question or, more to the point, the prefix ‘mono’ is being interpreted too strictly by people. Yes, there is competition. No, Amazon doesn’t control 99% of ecommerce, never mind 99% of retail. BUT, Amazon absolutely has enough market power to collect monopoly rents and that’s worthy of the FTC trying to unpack a bit. When Amazon raises fees on Sellers, how much behavior change do we see from Sellers? Not much. FBA fees go up, but we don’t see a huge shift away from FBA to 3PLs. Why? FBA = more sales. From a Buy Box algo, Amazon 1P > FBA > SFP > MFN when all other things are equal. Those higher FBA fees = monopoly rents.

Stifle innovation?
I’ve not read enough to know the specific allegations here, but it doesn’t seem like a stretch to believe Amazon has taken action to shut down innovative threats. That could be through acquisition of companies or policy implementations that starve the competition. Could you imagine trying to build a marketplace with dynamic pricing based on supply/demand and convincing Sellers to come us it, while knowing they’d lose Buy Box eligibility any time the price drifts lower than their Amazon offer? What about large 3PLs who want to build something closer to a true alternative to FBA? Or regional parcel carriers who think they should be allowed to offer Same Day Delivery from Sellers’ stores or DCs?

Amazon is accused of raising prices
On the face of this, I agree with your comments. Retailers can/should test price elasticity among consumers and their competitors. With that said, removing the Buy Box when they discover a lower price elsewhere harms competition. I had clients who turned down subsidized deals from WMT or eBay because the lift they’d get wasn’t worth the likely drop in Amazon sales if they lost the BB.

The real question in my mind is whether Amazon made use of data they shouldn’t have been using. For instance, what if they used the min/max prices 3P Sellers provide for their SKUs coupled with insight in the inventory levels to drive Amazon’s 1P pricing?

Example: I’m winning the BB for $100 on a product. My min price is set for $75. Amazon sees I have 20 units and estimates it’ll take 10 days for me to sell them at $100, but 3 days to sell at $75. The only competitor is Amazon, who has 1,000 units. They could set their price to $75 and own the BB, selling all 1,000 units before giving me the BB back. Or, imagine if they set their price to $77 knowing I’ll go to $75 to win the BB. I sell my 20 units, go OOS, and now Amazon can sell at whatever price they want.

In my opinion, if Amazon doesn’t win some of the significant, early motions in this case, they negotiate a settlement to stop doing some of the stuff they do today. I think we see a consent decree and a fine, but no structural remedies.

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This is a good question. The distinction between Amazon the marketplace and Amazon the retailer has always been contentious but it was also the only thing that made it work at all. How to firewall the data may be impossible.

Let’s be honest, is it better for consumers if 1P and 3P are split up? I think it is not.

Instead, a more nuanced solution must be found. And that solution is not likely to be found by the Government.

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I don’t think it is better for consumers if 1P and 3P are split. But, Amazon could likely negotiate a Consent Decree where they put in a more impenetrable firewall than what likely exists today (complete speculation on my part). Something “auditable” in a way similar’ish to PCI compliance or SOX protocols.

For instance, what’s the lowest level job title on the 1P side who can access any kind of reporting/analytics about the 3P business? There’s a country mile between “shouldn’t use that data” and “can’t directly access that data” for instance.

What if the xVP of some Technology team had to personally certify that any internal ranking, pricing, or other algos did not make use of any 3P seller information that was not otherwise publicly available in a way that favored 1P?

That kind of thing.

There are ways to address enough of the major concerns that still keeps Amazon whole, that potentially gives Amazon a bit more rope to hang themselves in the future, but that gives the FTC a win (and some 3P Sellers reason to believe the playing field isn’t as tilted as we know it is today).

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