Amazon’s smile might falter after this news. The attorney general for the District of Columbia filed an antitrust lawsuit against Amazon on Tuesday, alleging the ecommerce giant used its dominant market position to control pricing and product sales through anticompetitive business practices. At issue is Amazon’s online marketplace for third-party sellers and the company’s unfair business requirements of those sellers via the company’s Business Solutions Agreement.
According to the complaint, more than 2 million third-party sellers sell their wares on Amazon.com. Amazon controls between 50% and 70% of all online retail sales in the U.S. and an even a larger market share of third-party seller platforms, above Walmart.com and eBay.
The lawsuit alleges that Amazon requires third-party sellers to offer their products at the same or lower prices on Amazon as they do on other websites where they sell, including their own websites, suppressing competition and negatively impacting sales for those sellers. For example, if ABC Widgets sells its purple widget for $5 on Amazon, it cannot sell the same purple widget on another website for a lower price or offer better terms. Amazon’s Fair Pricing Policy, enacted in 2019 after regulatory scrutiny required them to change their previous policy, allows Amazon to banish third-party sellers from their site if they fail to comply with the requirements.
Amazon’s anticompetitive business practices violate a number of D.C. codes including a horizonal agreement in restraint of trade, vertical agreement in restraint of trade, the illegal maintenance of a monopoly, and attempted monopolization.
Fees and extra charges
Adding insult to injury, Amazon’s anticompetitive behavior includes a “complex scheme of fees and extra charges,” alleges the complaint, which are sometimes as high as 40% of the total product price. This further solidifies Amazon’s dominant market position because third-party sellers have to price their products to include those fees. With all fees and charges, it is estimated that Amazon.com receives a 45% commission. Third-party sellers have to pay these fees to become “Prime Eligible” and eligible for the Buy Box. Amazon competitors charge lower fees. Walmart, for example, does not charge a set up, subscription or listing fee for its products, only a referral fee for each sale.
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Impact on consumers
The complaint says that Amazon’s anticompetitive business practices artificially inflate prices, resulting in fewer choices for consumers and in the online retail markets. These practices also restrain trade, suppress innovation and reduce investment in platforms that might want to compete against Amazon.
The D.C. attorney general seeks to enjoin Amazon from continuing these and other anticompetitive business practices, provide injunctive relief, order restitution and damages for “harmed consumers,” impose civil penalties to deter future misconduct by Amazon and others, and award attorneys’ fees and costs. In addition, the complaint requests that a corporate monitor be appointed to ensure that the remedies ordered by the court are implemented and that Amazon does not further engage in anticompetitive conduct. The complaint requests a jury trial.
First known antitrust case against Amazon
Over the past several years, there has been concern expressed from government regulatory agencies and legislators about Amazon’s business practices, but this is the first known antitrust case to be filed against the company.
“Amazon has used its dominant position in the online retail market to win at all costs,” said Karl Racine, the attorney general for the District of Columbia. “It maximizes its profits at the expense of third-party sellers and consumers, while harming competition, stifling innovation and illegally tilting the playing field in its favor.”
The New York Times reports that the lawsuit is limited in scope. The D.C. attorney general was not joined by other states’ or territories’ attorneys general as often happens. By contrast, similar antitrust cases filed against Facebook and Google last year had the support of multiple states and territories. For example, in October 2020, the Department of Justice and 11 state attorneys general filed an antitrust lawsuit against Google.
In December 2020, in two separate actions, cases were filed against Google. The first was filed by 10 states regarding Google’s monopoly of the online ad market. In the second, more than 35 states and territories sued Google regarding their dominant market position in search and search ads. Also in December, the Federal Trade Commission and 48 states and territories sued Facebook for creating an illegal monopoly and conducting business in an anticompetitive manner.
Because the case was filed in a D.C. superior court rather than a federal court, any judgment or settlement would only apply to the District of Columbia, says The New York Times.
Amazon is certainly making the headlines this week. This lawsuit comes just a day before Amazon seals a deal to buy MGM for $8.45 billion*. Though the actions are separate, they could both have a significant impact on Amazon’s business. The purchase of MGM gives Amazon access to MGM content for its Amazon Prime Video business, while the antitrust lawsuit sets a precedent that the company is fair game. We expect to see other jurisdictions file lawsuits of their own or to join together to fight Amazon as a group. This lawsuit could have far-reaching financial consequences for the company if it is required to change its business practices in its third-party seller marketplace. It will take years for this to unfold in court, but it will be fascinating to watch. Get your popcorn ready!
*We’ll have the acquisition news for you tomorrow.