The Federal Trade Commission (FTC) and 17 state attorneys general have sued Amazon, alleging the e-commerce behemoth uses its position in the marketplace to inflate prices on other platforms, overcharge sellers and stifle competition.
The lawsuit, filed in US district court for the western district of Washington on Tuesday, is the result of a years-long investigation into Amazon’s businesses and one of the most significant legal challenges brought against the company in its nearly 30-year history.
The FTC and states are asking the court to issue a permanent injunction that they say would prohibit Amazon from engaging in its unlawful conduct and loosen its “monopolistic control to restore competition”.
“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,” the FTC chairperson, Lina Khan, said in a statement.
The lawsuit is one of the biggest legal challenges the company has faced since its inception in 1994.
But it did not come as a surprise. The suit comes after years of complaints that Amazon and other tech giants abused their dominance of search, social media and online retailing to become gatekeepers on the most profitable aspects of the internet. And the US government in recent years has signaled an increasing willingness to challenge the companies’ hegemony.
Observers had wondered whether the FTC would seek a forced breakup of the retail giant, which is also dominant in cloud computing and has a growing presence in other sectors like groceries and healthcare. In a briefing with reporters, Khan dodged questions of whether that will happen.
“At this stage, the focus is more on liability,” she said.
Amazon said that the FTC lawsuit was wrongheaded and would hurt consumers by leading to higher prices and slower deliveries.
“The practices the FTC is challenging have helped to spur competition and innovation across the retail industry, and have produced greater selection, lower prices, and faster delivery speeds for Amazon customers and greater opportunity for the many businesses that sell in Amazon’s store,” said David Zapolsky, Amazon’s general counsel.
In the lawsuit, the FTC does not argue Amazon is a monopoly because of its size but because it uses its position as both an online seller and online marketplace to deny meaningful competition. Amazon, the 124-page complaint argues, is stifling competition by imposing anti-discounting measures that prohibit merchants who sell products on Amazon from offering lower prices elsewhere.
In the complaint, the FTC accuses Amazon of tactics such as “anti-discounting” measures that penalize sellers offering their products for cheaper in other online marketplaces. The filing also notes that Amazon controls a vast distribution network and alleges the company forces third-party sellers to pay high fees for its fulfillment services with little other option but to comply.
“Amazon has hiked so steeply the fees it charges sellers that it now reportedly takes close to half of every dollar from the typical seller that uses Amazon’s fulfillment service,” the complaint states.
The complaint also accuses Amazon of requiring merchants to use the company’s delivery and fulfillment system in order to qualify for Prime.
The also charges that Amazon prioritizes the company’s in-house line of products over others, even if those other products are of better quality, and serves an increasing number of paid and junk ads.
The injunction the FTC and states are seeking would force the company to stop these practices, the agency and states say, a change that could significantly alter the ways customers interact with Amazon’s platform and the types of products that surface when they are shopping.
Worth more than $1tn today, Amazon controls 82% of the online retail market, according to the complaint, making it a virtual necessity for merchants to sell their products on the platform in order to reach most online customers.
“This market power enables Amazon to set the price floor on almost every online retail item offered by sellers, extract a 50% cut from each sale, and punish sellers who try to sell elsewhere at lower prices,” Matt Stoller, the director of research at the non-profit advocacy group the American Economics Leadership Project, said in a statement.
“There’s no such thing as ‘free shipping’ just as there’s no such thing as a free lunch. Amazon is just hiding from consumers how much they have to pay,” he added.
The FTC action against Amazon has been long awaited. During the Trump administration, which ended in 2021, the justice department and FTC opened investigations into Google, Facebook, Apple and Amazon.
The justice department has sued Google twice - once under Trump regarding its search business and a second time under Joe Biden over its advertising technology. The FTC sued Facebook during the Trump administration and Biden’s FTC has pressed forward with the lawsuit.
News of imminent action against Amazon had been circulating for months, after a meeting between regulators and top Amazon executives in August failed to assuage the government’s antitrust concerns.
Khan, the FTC chairwoman, has for years been clear she considered Amazon among the worst anti-trust violators. In fact, Amazon in 2021 demanded Khan recuse herself from any antitrust investigations into the e-commerce firm because of her previous criticisms of its business practices. These critiques were most notably lodged in a law school paper she wrote in 2017, in which she argued that Amazon was engaged in anti-competitive behavior despite the low prices found on the platform.
Khan was also on the staff of the House committee that wrote a report issued in 2020 that advocated reining in four tech giants: Amazon, Apple, Google and Facebook.
Soon after she became chair of the FTC, in 2021, she sued the company, accusing it of using “manipulative, coercive” methods to trick people into recurring subscriptions – a claim Amazon has denied.