Tech

U.S. Accuses Amazon of Illegally Protecting Monopoly in Online Retail

The Federal Trade Commission and 17 states sued Amazon on Tuesday, setting up a long-awaited antitrust fight with the e-commerce giant that could alter the way Americans shop for everything from toilet paper to electronics online.

The 172-page suit, the federal government’s most significant challenge to the power of the online store, accused Amazon of protecting a monopoly over swaths of online retail by squeezing merchants and favoring its own services.

For consumers, that meant “artificially higher prices” as merchants were blocked from selling their products for less on other sites, and a worse shopping experience as Amazon boosted its own products and peppered its search results with ads, the lawsuit said. The retailer’s tactics made it impossible for its rivals to compete, the agency and states said.

“A single company, Amazon, has seized control over much of the online retail economy,” said the lawsuit, which was filed in U.S. District Court for the Western District of Washington. “It exploits its monopolies in ways that enrich Amazon but harm its customers: both the tens of millions of American households who regularly shop on Amazon’s online superstore and the hundreds of thousands of businesses who rely on Amazon to reach them.”

The lawsuit put the influence and reach of Amazon, a $1.3 trillion behemoth, squarely in the spotlight after years of mounting scrutiny. Founded by Jeff Bezos in 1994, the onetime upstart online bookseller has grown into a conglomerate with tentacles in retail, Hollywood and the foundational infrastructure of the internet.

Much of the Seattle-based company’s power has emanated from its online marketplace, sometimes known as an “everything store” for the range of products it sells and the speed with which it delivers them. Amazon’s sway over online commerce has shaped the lives of merchants around the world, set the working conditions for more than one million warehouse workers and pushed the Postal Service to deliver on Sundays.

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Now Amazon, which denied the accusations in the lawsuit, has become the latest big tech company to face off against the government over monopoly concerns, just as the Justice Department entered the third week of an antitrust trial challenging Google over its power in online search. The F.T.C. has also brought an antitrust lawsuit against Meta, which owns Instagram, Facebook and WhatsApp. Members of Congress have considered legislation to regulate some of the companies’ most common business practices.

The new lawsuit pits Amazon directly against Lina Khan, the F.T.C. chair, in a long-awaited confrontation. She rose to fame as a Yale law student in 2017 when she published a paper arguing that American antitrust laws had failed to adequately stop Amazon from amassing power over its customers, competitors and suppliers. The paper helped kick off a debate about whether U.S. antitrust laws needed to be modernized to rein in tech giants.

David Zapolsky, Amazon’s general counsel, said in a statement that the F.T.C. “is wrong on the facts and the law” with the lawsuit, portions of which were heavily redacted. He said the complaint showed that the agency’s “focus has radically departed from its mission of protecting consumers and competition.”

“If the F.T.C. gets its way, the result would be fewer products to choose from, higher prices, slower deliveries for consumers and reduced options for small businesses — the opposite of what antitrust law is designed to do,” he added.

The F.T.C. asked the court to issue an injunction blocking Amazon from engaging in “unlawful conduct” and raised the possibility of altering the company’s structure. But it stopped short of detailing how the court could clip Amazon’s dominance, such as breaking apart elements of its business. The agency could become more specific if it succeeded in proving Amazon violated the law.

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“If we succeed, competition will be restored and people will benefit from lower prices, greater quality, greater selection as a result,” Ms. Khan said of the lawsuit.

In the lawsuit, the F.T.C. said Amazon abused a driver of sales known as the Buy Box — the valuable space on its website and app that prompts customers to “Buy Now” or “Add to Cart.”

If Amazon sees a product available for less elsewhere, it will remove those two buttons and replace them with less enticing language and designs to discourage discounts outside its site, the lawsuit said. The company recognized merchants’ sales would “tank” if they lost the Buy Box, the lawsuit said. To survive, sellers kept prices high on other sites, it said.

The lawsuit argued that the company made it hard for merchants to sell across different sites by making them use Amazon’s fulfillment and delivery services to be eligible for its Prime benefits, which have millions of subscribers.

Amazon, which generates more than $500 billion in annual revenue, has continued growing despite the scrutiny. In the past three years, it bought One Medical, a chain of primary care practices; the Roomba manufacturer iRobot; and the fabled movie studio Metro-Goldwyn Mayer, giving it a major stake in the James Bond franchise. These deals have added to an empire that includes its online superstore, cloud computing services that power wide areas of the web and a streaming service that competes with rivals like Netflix.

The F.T.C.’s competition team began investigating Amazon’s business in summer 2019, with no shortage of complaints about the company’s business practices from critics and rivals.

By June 2021, when President Biden appointed Ms. Khan to be the F.T.C.’s chair, Amazon had provided the agency with documents and information, a person familiar with the investigation said. Under Ms. Khan’s leadership, a new team was formed to run the antitrust inquiry, the person said.

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The relationship between Amazon and the F.T.C. has been strained since Ms. Khan took over the agency. Weeks after she was sworn in, Amazon petitioned the agency to have her recused from antitrust matters regarding the company.

Last year, Amazon moved to stop the agency from interviewing Mr. Bezos and Andy Jassy, the company’s chief executive, in a separate investigation into its Prime membership practices, accusing the F.T.C. of “harassing” the executives. This June, the F.T.C. sued the company as a result of that investigation, accusing it of violating consumer protection laws by tricking consumers into signing up for its Prime membership program.

With Tuesday’s announcement, the F.T.C. joins government agencies around the world that are trying to check Amazon’s influence on the economy.

In 2021, the attorney general of the District of Columbia accused Amazon of controlling prices on its website, but a judge dismissed the case last year. A similar, but more robust, case brought by California overcame Amazon’s attempt to have it thrown out.

The F.T.C.’s lawsuit also echoes accusations from European Union regulators that caused Amazon to change some of its practices. The company agreed last year to a settlement in Europe that will see it display offers from more merchants on individual product pages, and it earlier eliminated some contractual language that stopped merchants from discounting products elsewhere.

Amazon is also winding down most of its private label brands after they failed to generate substantial consumer traction, a person familiar with the strategy said. In June, it announced it would later this year reopen enrollment for a program that let merchants sell their products as Prime-eligible while handling the deliveries themselves, without using Amazon’s warehouses.

Karen Weise contributed reporting from Seattle.

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