Amazon was created in 1994 as a marketplace for books but soon turned into an online shopping website selling much more. Known for its fast shipping and huge offering of products from around the world, it has seized control over the online retail economy. Amazon is one of the most widely used online commerce companies, with over 310 million active users worldwide. It has also become a multi-billion dollar company, hitting the trillion-dollar market cap.
This past week, the Federal Trade Commission and 17 states have accused Amazon of protecting a monopoly by cornering merchants and advertising their services, filing a 172-page suit detailing the accusations. This suit is the result of a years-long investigation into Amazon’s business dealings and claims to be one of the biggest legal challenges against the giant Amazon in the past 30 years.
The FTC and states are arguing that Amazon has abused its power as a monopoly to manipulate the market and extract a greater profit from the business.
An interesting point to note is that the FTC argues Amazon is a monopoly not because of its profit or size but because of its “hegemony” over the market.
Amazon allegedly uses its position to limit competition from other online marketplaces and sellers. The company prohibits merchants who sell their products on Amazon from offering them for a lower price on any other site.
Detailed in the complaint, the FTC goes on to accuse Amazon of “anti-discounting measures,” where the corporation penalizes merchants for selling products elsewhere.
The file also notes that Amazon charges high fees to merchants for their services and collects over half the sales that merchants make. In doing so, Amazon has cornered merchants in their monopoly, offering services to sell, but taking the majority of the profits as a return.
Furthermore, Amazon would remove the “Buy Box” if they discovered merchants selling products elsewhere and replace it with less-enticing language. The “Buy Box” is the space on the website that promotes products to customers, saying “buy now” or “add to cart”.
In the latter half of the suit, Amazon is slammed for prioritizing its in-house line of products over others. Although other products sold by third-party merchants may be of higher quality and better price, Amazon has allegedly decorated their site with paid ads promoting their products.
The dilemma of the monopoly system presents itself at this point in the filing. Whereas Amazon is a multi-trillion dollar monopoly, merchants need to sell their products on this online marketplace to get the highest rate of customers. However, Amazon has its anti-discounting measures not only punishing merchants for offering their products at cheaper prices elsewhere but also collecting the majority of the merchants’ profits as fees.
The FTC and states strive to strike down this never-ending cycle that disadvantages merchants.
Opinions are divided more than ever. The FTC argues that if this lawsuit is successful, Amazon will lose a great chunk of its hegemonic power and this could open up the space for ‘healthy competition’.
Other retail websites could promote their products to create a space for customers to choose the best products for the best price. However, many argue that this lawsuit could hurt consumers. This lawsuit would reduce the number of merchants and products from Amazon, and Amazon would remain a trillion-dollar company. This could mean consumers that continue to use Amazon would face higher prices and limited products.
Whether the effects of the lawsuit may be better or worse for consumers, it nonetheless changes the tide of online retail. With the lawsuits against Google presented earlier this month, this could be the start of a new generation of technology and online marketplace for the coming years.