The recent antitrust lawsuit filed by the Federal Trade Commission (FTC) and 17 states against Amazon marks a significant moment in the battle against monopolistic practices. Amazon, one of the world’s largest companies, is accused of monopolisation and unfair competition, with the case scrutinising the company’s pricing and business strategies.
For nearly two decades, Amazon has operated on the premise of being the lowest-cost retailer, offering “free” shipping to over 100 million Amazon Prime members who pay an annual fee of $139. However, the revenue from Prime memberships does not cover Amazon’s logistics costs, which amounted to $85 billion in 2022. The company’s ability to maintain low prices and offer free shipping hinges on a hidden tax embedded in the prices of goods sold on its platform.
Amazon’s real customers are not the end consumers but third-party sellers who rely on the company’s infrastructure to reach the public. These sellers account for 60% of the products sold on Amazon. The high fees they pay—nearly 50% of their revenue—fund Amazon’s operations, including free shipping, Prime Video, and other services. This cost is passed on to consumers through higher prices, creating a hidden tax.
Amazon’s control over third-party sellers is further cemented by its use of algorithms to enforce price parity across different platforms. Although Amazon dropped explicit contractual requirements in 2019, it continued to use algorithms to ensure that sellers do not offer lower prices elsewhere. This tactic effectively raises prices across the internet, not just on Amazon.
The FTC’s complaint highlights how Amazon’s practices degrade the shopping experience, raise prices, and stifle competition. Advertised products on Amazon are 46 times more likely to be clicked on than non-advertised ones, making it difficult for consumers to find the best products. Even Amazon’s own executives have acknowledged the detrimental impact of their advertising practices on organic search results.
The lawsuit also sheds light on Amazon’s secretive practices. The company has been accused of destroying documents and internal communications related to the case. Additionally, an internal project known as “Project Nessie,” an algorithmic pricing system, has been flagged by the FTC as an unfair method of competition, although details remain redacted.
Despite the challenges of antitrust cases, which often depend on the judge’s discretion, the FTC’s complaint is robust. Bill Baer, former Assistant Attorney General for Antitrust under the Obama Administration, noted that if the FTC and states can prove even some of their allegations, Amazon could face significant repercussions.
The case against Amazon is part of a broader trend of increasing scrutiny of tech giants. The current legal landscape, marked by multiple antitrust cases against major corporations like Google, underscores the importance of public interest and advocacy in shaping policy. As Ashley Gold from Axios pointed out, the surge in tech antitrust cases indicates that political pressure can lead to meaningful change.
In summary, the lawsuit against Amazon is a critical step in addressing monopolistic practices and ensuring fair competition. It highlights the need for transparency and accountability in corporate practices, and serves as a reminder that public advocacy can drive significant policy changes.