U.S. and 17 States Sue Amazon Alleging Monopolistic Practices Led to Higher Prices

From a Washington Post story by Cat Zakrzewski, Will Oremus, and Trisha Thadani headlined “U.S. 17 states sue Amazon alleging monopolistic practices led to higher prices”:

The Federal Trade Commission and 17 state attorneys general filed a sweeping antitrust lawsuit against Amazon on Tuesday alleging that the company abused its powers to squeeze merchants and thwart rivals — resulting in higher prices and lower-quality goods for the tens of millions of American households who regularly shop at the company’s online superstore.

Merchants who rely on Amazon to stay in business are forced to pay a range of fees that trickle down to consumers, the FTC argues in the suit. “Pay-to-play advertisements” clog its store and “[degrade] the services” it provides customers, the regulators allege.

The long-awaited lawsuit, filed in Western Washington district court, marks a historic political test of one of the world’s most influential companies — as well as the regulators who have promised for years to rein in its allegedly monopolistic practices.

FTC Chair Lina Khan’s meteoric rise to the helm of the antitrust enforcement agency has been closely tied to the e-commerce company. She gained national attention while still a law school student for a paper titled “Amazon’s Antitrust Paradox,” arguing the e-commerce giant evades scrutiny because of the relatively narrow way the courts have interpreted antitrust law. Her paper has been at the center of a broader political movement that argues monopoly law should be more creatively and aggressively enforced, extending beyond the prices consumers pay.

Tuesday’s lawsuit takes a different tack, focusing on a cornerstone of monopoly law: prices for consumers. Fees, requirements, and incentives let Amazon collect one out of every two dollars a seller makes on the platform, effectively resulting in a “50 percent Amazon tax,” Khan said. The FTC argues those costs are then passed onto shoppers.

“Amazon is a monopolist, and it is exploiting its monopolies in ways that leave shoppers and sellers paying more for worse services,” Khan told reporters in a briefing.

David Zapolsky, Amazon senior vice president of global public policy and general counsel, said the suit is “wrong on the facts and the law.”

“If the FTC 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 said.

Amazon founder and former CEO Jeff Bezos owns The Washington Post. Interim CEO Patty Stonesifer sits on Amazon’s board.

The FTC began investigating Amazon in 2019 under the Trump administration, but the probe significantly expanded under Khan’s leadership. The agency’s relationship with the company also became visibly more contentious. Within weeks of Khan’s confirmation, Amazon filed a petition demanding her recusal from the case, citing her long-running criticism of the company.

Over four years, Amazon turned over millions of pages of internal documents and more than 100 terabytes of data, according to a person familiar with the investigation, who spoke on the condition of anonymity to discuss the scope of the probe. Dozens of its senior employees sat for interviews with agency lawyers. In August, executives met with FTC commissioners for a so-called “last rites” meeting, the person said.

Amazon, like other tech giants, has come under increased regulatory scrutiny over the last five years, amid a so-called Washington “techlash.” The lawsuit marks the most potent regulatory threat to Amazon in its nearly 30-year history.

The suit arrives as Google is on trial in Washington for antitrust charges brought by the Department of Justice and states. The FTC also has an ongoing antitrust lawsuit that seeks to break up Facebook parent company Meta, and DOJ has a separate case pending against Google’s ad business.

Unlike some of those cases, the FTC’s does not explicitly seek a breakup of Amazon’s business. The suit says remedies could include structural changes to the company, but does not specify what those would be. “We’ll want to get to the question of remedy when we get there,” Khan said when pressed about a potential breakup at an event hosted by Bloomberg.

Amazon is a far cry from the book e-tailer start-up founded in Bezos’s Seattle-area garage in 1994. The company is now the United States’ second-largest private employer, and its workforce totals more than 1.4 million globally, spanning health care, entertainment and devices. Amazon purchased Whole Foods, Zappos, One Medical and MGM, among other, smaller acquisitions. It’s built a logistics network that rivals the size of UPS domestically.

While many customers think of Amazon as a retailer, its site expanded in 2000 to become a marketplace much like eBay, allowing third-party merchants to sell on its site. That business has ballooned over the last two decades, comprising 60 percent of total units sold on the site in the company’s most recent quarter. It’s paired with a seller services business — bringing in roughly $32.3 billion in revenue in its most recent quarter. Its advertising business brought in an additional $10 billion.

The FTC’s case focuses heavily on Amazon’s treatment of those businesses, arguing “anti-discounting measures” prevent third-party sellers from offering goods more cheaply than Amazon — keeping prices high for shoppers across the entire internet.

At the heart of the FTC’s allegations is a program called Fulfillment by Amazon, in which the e-commerce giant stores, packs and ships items sent in by third-party sellers for its marketplace. For years, it has been the primary way that sellers have qualified to have their sales eligible for “Prime” shipping, part of the company’s bundled membership that guarantees two-day shipping. While some sellers can ship Prime products themselves, the vast majority pay the e-commerce giant to store and ship their items.

Sellers that don’t use Amazon’s fulfillment services see their products “effectively disappear” from the site, Khan alleged. The FTC’s suit cites a 2014 letter Bezos wrote to shareholders, where he calls the fulfillment services “glue that inextricably links” Amazon’s marketplace with its Prime service. The program leaves sellers “trapped,” stunting the market for independent fulfillment providers, she argued at a news conference.

Additionally, Amazon’s lucrative ad business pushes businesses to pay for keywords or product placement to bump up their products higher in the company’s search results — a tactic many sellers say is a necessity to succeed on the site. The Post has previously reported that the ads can appear misleading to consumers, making it tough to tell what is pay-to-play.

The complaint argues that Amazon’s search results are “cluttered” with advertisements, and on mobile devices, they’re often the only results shoppers can see without scrolling.

“In a competitive world, a monopoly hiking prices and degrading service would create an opening” for rivals, Khan said at a news conference. But “Amazon’s unlawful monopolistic strategy has closed off that possibility, and the public is paying dearly as a result.”

The heavily redacted lawsuit references an algorithm internally code-named “Project Nessie,” which the FTC argues undermines the company’s claim that it aims to be “Earth’s most customer-centric company.” According to the company’s website, “Nessie” refers to a system used to monitor trends on Amazon.com — not the monster in Scottish folklore. The FTC’s allegations about the tool have been blacked out from the complaint.

Steven Pope, 36, owner of Age of Sage, an artisanal soap brand that he has sold on Amazon for six years, says the company has “stacked the deck” against sellers like him. He has experienced a flurry of issues with the platform over the years, like recently when the company removed his brand registry with no explanation and he had to spend days petitioning Amazon to get it reinstated.

Pope, who also owns My Amazon Guy, a consultancy for sellers, said there are many positives to selling on Amazon — from its massive reach, to the ease of starting up a business on the site. But, he said, it takes a lot of sophistication and business acumen to succeed.

“Any seller that sells on Amazon is successful despite Amazon, not because of Amazon,” he said.

For decades, U.S. competition policy has focused on high prices for consumers as an indicator of whether a company is a monopoly. But as Amazon’s might has grown, Khan has spearheaded a movement to reconsider how antitrust laws might apply to it and other vast internet platforms.

She argued in her influential law review paper that Amazon harms competition not by jacking up prices for consumers, but by driving out competitors with “predatory pricing” and unfairly squeezing the many smaller businesses that rely on its platform to reach their customers. Khan and like-minded advocates, including legal scholar and former Biden adviser Tim Wu, have pushed for a return to more aggressive antitrust policy to rein in the internet giants that have become the world’s most valuable companies.

Yet their antitrust push has suffered significant setback in courtrooms, particularly in tests of efforts to block high-profile tech mergers. A federal judge earlier this year allowed Meta to proceed with its acquisition of the virtual reality company Within, following a FTC challenge. The FTC also lost a similar suit attempting to block Microsoft’s $69 billion acquisition of gaming company Activision, and the deal is expected to close soon.

Amid this evolution, state attorneys general have brought their own competition challenges against Amazon. California last year accused the company of stifling competition by penalizing sellers if they offer services elsewhere for lower prices. A federal judge in March blocked Amazon’s attempt to dismiss the California suit. Last year, a court threw out a similar lawsuit brought by the D.C. attorney general.

The FTC in May settled a pair of narrower lawsuits against Amazon, one for $5.8 million pertaining to the home security camera company Ring and another for $25 million relating to its recordings of the voices of children using Alexa, Amazon’s personal voice assistant.

Amazon has also faced questions in congressional hearings in recent years about its practices, including allegedly using its data on third-party sellers to give a leg up to its own competing products.

Khan said consumers and sellers would benefit if the FTC is victorious in the case, which will likely take years to resolve in court.

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

Cat Zakrzewski is a technology policy reporter, tracking Washington’s efforts to regulate Silicon Valley companies. Her reporting covers antitrust, privacy and the debate over regulating social media companies.

Trisha Thadani joined The Washington Post in 2023 from the San Francisco Chronicle. She covers the technology industry, with a focus on Apple’s influence on society, politics and policy.