Amazon is in the hot seat again. Yesterday, the Federal Trade Commission and 17 state attorneys general filed a complaint against the company alleging the ecommerce and tech giant abused its dominant market position to overcharge consumers and sellers and to stifle competition. According to the FTC’s September 26 announcement, the FTC and states allege Amazon has used “anticompetitive and unfair strategies” to create and maintain an illegal monopoly.
The states who participated in the filing of the complaint include Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island and Wisconsin. The plaintiffs seek a permanent injunction in federal court to prohibit Amazon from engaging in unlawful conduct and to lessen Amazon’s monopolistic control in the online marketplace by restoring competition.
Specifically, the FTC and 17 states allege that Amazon used its dominant market position to:
- Stop rivals and sellers from lowering prices.
- Degrade the shopping experience for consumers by replacing organic search results with paid ads and junk search results.
- Influence Amazon’s search results to show preference to Amazon products over superior products offered by sellers.
- Overcharge sellers via costly fees and force them to use Amazon’s fulfillment services.
- Stifle innovation.
- Prevent rivals from competing fairly against Amazon.
FTC speaks out
“Our complaint lays out how Amazon has used a set of punitive and coercive tactics to unlawfully maintain its monopolies,” said FTC Chair Lina M. Khan. “The complaint sets forth detailed allegations noting how Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them. Today’s lawsuit seeks to hold Amazon to account for these monopolistic practices and restore the lost promise of free and fair competition.”
John Newman, deputy director of the FTC’s Bureau of Competition, said Amazon unfairly charged consumers higher prices and charged hundreds of thousands of online sellers “sky-high fees.”
“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.
In their announcement, the FTC gave two examples of anticompetitive behavior and an illegal monopoly. Amazon used anti-discounting measures to punish sellers and deter other online retailers from offering prices lower than those offered on Amazon, effectively keeping prices higher across the internet. The company also coerced sellers into using Amazon’s expensive fulfillment service, making it too expensive for online sellers to offer their products on other platforms.
“This unlawful coercion has in turn limited competitors’ ability to effectively compete against Amazon,” the FTC said.
FTC amends complaint in Amazon Prime enrollment scheme
The news comes just a week after the FTC amended their complaint in a separate case against Amazon. Originally filed in June, the complaint alleges Amazon deceived consumers by enrolling them in their Prime membership program without their consent. The company also made canceling their memberships all but impossible, calling their internal processes the “Iliad Flow,” indicating the cancellation process was long and drawn out. In the amended version of the complaint, the FTC named three senior executives at Amazon as additional plaintiffs, citing examples that confirmed the executives were involved in thwarting consumers’ attempts to cancel their Prime memberships.
“Fittingly, Amazon named that process ‘Iliad,’ which refers to Homer’s epic about the long, arduous Trojan War. Amazon designed the Iliad cancellation process (‘Iliad Flow’) to be labyrinthine, and Amazon and its leadership—including Lindsay, Grandinetti, and Ghani—slowed or rejected user experience changes that would have made Iliad simpler for consumers because those changes adversely affected Amazon’s bottom line,” said the FTC in the amended complaint filed last week.
Insider Take
These two cases make serious allegations against Amazon, first with dark patterns to trick and trap consumers into signing up for Amazon Prime without their consent and next with anticompetitive behavior and an illegal monopoly to stifle their rivals and overcharge shoppers. The FTC has been investigating Amazon for years, but FTC chair Lina Khan has been targeting the company even before joining the FTC. Regardless of the final outcomes of these cases, we expect that Amazon will be forced to change some policies and processes immediately. However, it is likely their punishment will extend far beyond a slap on the wrist if Amazon promises to behave. The FTC intends to make an example of Amazon, and the ecommerce and tech giant has given them plenty of ammunition with which to do so.
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