Attorneys general in New York and California are teaming up with the Federal Trade Commission to investigate Amazon for anti-competitive behavior. It's long been known that the agency is investigating Amazon, but the cooperation between state and federal agencies is new.
The FTC has been investigating Amazon since last year over various practices, including the way it treats third-party sellers in its online marketplace. The company has been criticized for treating sellers unfairly through tactics like using data on product sales to influence the creation of its own private-label alternatives at lower prices, which it can elevate higher in search results. CEO Jeff Bezos said during last week's antitrust hearing that the company has a policy against using such merchant data but that he cannot promise it hasn't happened before.
Amazon is being investigated for other anti-competitive practices, too. During the antitrust hearing, emails were released showing how Amazon killed its rival Diapers.com by selling its own diapers at a loss until Diapers.com was forced to raise the white flag and sell its business to the e-commerce giant. Amazon then jacked up the price of diapers on its site. That constitutes illegal dumping under current antitrust law because any competitive behavior is supposed to lower prices for consumers, not systematically make them higher.
Platform power — Amazon has argued that other retailers like Walmart already use sales data to create their own private-label products. But in e-commerce, nobody is even close to being as big as Amazon with its nearly 50 percent command of the U.S. market. As coronavirus accelerates the shift to online ordering, Amazon can potentially kill any new business that comes up with an innovative product by copying them or pushing them off its platform altogether – and they have no say in the matter.
Besides promoting its own, cheaper goods, Amazon also charges merchants around 30 percent in fees on goods sold. Some sellers say fees can now account for nearly half a company's sales when the cost to advertise on Amazon is included. If merchants want their products to be eligible for two-day Prime shipping, they need to pay to have their items stored in Amazon warehouses. It's been found if Amazon sees a merchant selling their product for a lower price elsewhere, it ranks their item lower in search results.
If sellers decide to opt-out of all of this and stop offering goods on Amazon altogether, they risk seriously harming their sales. They're essentially living at its mercy every day.
Antitrust law needs an update — With last week's antitrust hearing out of the way, the House Judiciary Committee will soon issue a report concluding its investigation that could argue for antitrust legislation that meets the needs of the 21st century. Current policy only finds that companies are violating antitrust law if they cause financial harm for consumers. Amazon's focus on low prices (for the most part) means it is arguably giving consumers a good deal, but it doesn't account for potentially lost innovation when Amazon squeezes competitors and small businesses.
Companies are supposed to compete on the quality and price of their products, not on their ability to knock out competition through sheer might. Antitrust law is supposed to protect fair competition in an open marketplace. It's not doing that, and lawmakers are finally adapting.