U.S. government, 17 states sue Amazon for abusing monopoly power

The U.S. Federal Trade Commission (FTC) filed a long-awaited antitrust lawsuit against Amazon.com on Tuesday, charging the online retailer with harming consumers through higher prices in the latest U.S. government legal action aimed at breaking Big Tech’s dominance of the internet.

The lawsuit, which was joined by 17 state attorneys general, follows a four-year investigation and federal lawsuits filed against Alphabet’s Google and Meta Platforms’ Facebook.

“The FTC and its state partners say Amazon’s actions allow it to stop rivals and sellers from lowering prices, degrade quality for shoppers, overcharge sellers, stifle innovation and prevent rivals from fairly competing against Amazon,” the agency said in a statement.

The FTC said that it was asking the court to issue a permanent injunction, ordering Amazon.com to stop its unlawful conduct.

Amazon said that the FTC lawsuit was wrong-headed 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.

The federal complaint follows other actions the FTC has taken against Amazon recently. In June, the agency sued the company, alleging it was using deceptive practices to enrol consumers into Amazon Prime and making it challenging for them to cancel their subscriptions.

In late May, the company agreed to pay a $25-million US civil penalty to settle allegations that it violated a child privacy law and misled parents about data deletion practices on its popular voice assistant Alexa.

Booksellers and authors have also been urging the U.S. Department of Justice to investigate what they’ve called Amazon’s “monopoly power over the market for books and ideas.”

Unnecessary fees, pressure to use

The FTC said that Amazon, founded in 1994 by Jeff Bezos and worth more than $1 trillion US, punished sellers that sought to offer prices that were lower than Amazon’s by making it difficult for consumers to find the seller on Amazon’s platform.

Other allegations include:

• Amazon gave preference to its own products in search results over competitors.
• Charging costly monthly and advertising fees to sellers it says have no choice but to rely on Amazon.
• Engaging in “unlawful coercion” to pressure sellers to join Amazon’s Prime fulfilment service.

FTC chair Lina Khan said that Amazon had used illegal tactics to fend off companies that would have risen to challenge its monopoly.

“Amazon is now exploiting that monopoly power to harm its customers, both the tens of millions of families that shop on Amazon’s platform and the hundreds of thousands of sellers that use Amazon to reach them,” she said.

Khan, while a law student, wrote about Amazon.com’s dominance in online retailing for The Yale Law Journal and was on the staff of the House committee that wrote a report issued in 2020 that advocated reining in four tech giants: Amazon.com, Apple, Google and Facebook.

Many analysts had wondered whether the agency would seek a forced breakup of the retail giant, which is also dominant in cloud computing through Amazon Web Services and has a growing presence in other sectors, like groceries and health care. In a briefing with reporters, Khan dodged questions of whether that will happen.

“At this stage, the focus is more on liability,” she said.

Some estimates show Amazon controls about 40 per cent of the e-commerce market. A majority of the sales on its platform are facilitated by independent sellers consisting of small- and medium-sized businesses and individuals. In return for the access it provides to its platform, Amazon rakes in billions through referral fees and other services like advertising, which makes products sold by sellers more visible on the platform.

The vast majority of third-party merchants also use the company’s fulfilment service to store inventory and ship items to customers. Amazon has been consistently raising fees for those reliant on the program and more recently imposed, and then abandoned, another fee on some who don’t — a move that was blasted by the company’s critics.

Amazon critic welcomes suit

Last quarter, Amazon reported $32.3 billion US in revenue from third-party services. According to the anti-monopoly organization Institute for Local Self-Reliance (ILSR), the fees cost U.S. sellers 45 per cent of their revenue in the first half of this year — up from 35 per cent in 2020 and 19 per cent in 2014.

The ILSR, long critical of Amazon’s power, welcomed the agency’s lawsuit.

“No corporation has ever centralized this much power across so many crucial sectors. Left unchecked, Amazon’s power to dictate and control threatens the rule of law and our ability to maintain open, democratically governed markets,” said Stacy Mitchell, the group’s co-executive director.

The need to take action against Big Tech has been one of the few ideas that Democrats and Republicans have agreed on. During the Trump administration, which ended in 2021, the Justice Department and FTC opened probes into Google, Facebook, Apple and Amazon.

But in terms of the current lawsuit, the large majority of states joining were solid Democratic jurisdictions, with no states in the south.

The lawsuit was filed in federal court in Seattle, where Amazon is based.