Do Not Pass GO or Collect: The FTC’s Lawsuit Against Amazon

On Tuesday, ecommerce giant Amazon found themselves caught up in a large-scale game of Monopoly with the Federal Trade Commission (FTC), the winner of which is yet to be seen. While Amazon is preparing for a busy Q4, complete with multiple holiday shopping events, the FTC passed them a “Go to Jail” card in the form of a lawsuit alleging anticompetition strategies to hold onto power. 

The lawsuit filed by the FTC, along with 17 state attorney generals, spans more than 150 pages and makes a handful of major claims against Amazon. The overwhelming theme of the document? That Amazon is hurting both sellers and consumers by monopolizing the ecommerce landscape.  

What are the claims against Amazon? 

Unlike other high-profile monopoly and anti-competition lawsuits that have taken place recently, the FTC’s issue with Amazon is not because they’re a giant. Instead, the lawsuit asserts that Amazon utilizes anti-competitive tactics, including: 

Coercing Sellers into Using Amazon’s FBA

Specifically the FTC asserts that sellers have to use fulfillment by Amazon (FBA) in order to achieve “Prime” eligibility for products, making it a prerequisite for success on the marketplace. Without Prime certification on products, sellers have a significantly lower chance of winning the Amazon buy box which helps to increase conversions and profits. If two sellers with similar products are competing for the buy box, the seller with a Prime eligible product utilizing FBA will automatically win. Additionally, many Prime subscribers will filter out products that are not Prime eligible, meaning that by not using FBA sellers are reaching far less potential customers.  

While FBA is becoming more and more necessary in order to be successful, Amazon continues to squeeze sellers who use the service by raising fees. Profit margins for sellers shink due to the increasing fees for infrastructure buy-in and the pressure to list products at deeply discounted and/or competitive prices. As a result, sellers are making less and less even at higher pricepoints for customers. 

Anti-discounting Measures

The FTC believes that Amazon prevents sellers from listing products on other websites at more competitive prices. If they discover that a seller is offering the same good at lower prices on any other platform, they’re likely to bury them in search results– rendering them almost invisible on the platform. 

Using Seller’s Data to their Own Advantage

Just like the dealer in a game of cards, Amazon almost always wins. With all the data from the most successful sellers right at their fingertips, Amazon is able to see everyone’s strategies before showing their own– which gives them a unique advantage for success. They analyze these sellers in order to improve their own product offerings through the Amazon Essentials brand name, then undercut independent sellers using sheer size and resources. In the end, Amazon reaps even more of the profits due to the absence of fees they place on independent sellers. 

Does Amazon have a “Get out of Jail Free” card? 

The short answer is no. However, it’s likely to be years before anything significant comes of the FTC’s lawsuit, which means that there’s plenty of time for Amazon (and sellers) to prepare for any changes that may occur. The case will also evolve over time, depending on a wide variety of factors, including the 2024 election. 

In response to the lawsuit, Amazon released a statement saying, “The FTC’s allegations that we somehow force sellers to use our optional services is simply not true.” Amazon claims that their services, including the Prime badge, simply drive competition and provide customers with the best deals. They also assert that their services, specifically FBA and Amazon advertising, are not necessary for success on the platform. 

“The FTC’s complaint alleges that our pricing practices, our Fulfillment by Amazon offering, and Amazon Prime are anti-competitive. In so doing, the lawsuit reveals the Commission’s fundamental misunderstanding of retail.”

What does this mean for the rest of the players (sellers)?

It’s likely that we won’t see the fallout, if there is any, of this case for years. However, there could be positive effects for sellers if the FTC is able to succeed in putting some pressure on Amazon. Ecommerce sellers have a right to a transparent and fair marketplace, something that Amazon has continued to push the boundaries on frequently in recent years. Greater clarity about policies, practices, and guidelines would be a massive help, potentially eliminating many of the unwarranted and seemingly unprompted account suspensions that sellers struggle with. 

Additionally, while many sellers rely on Amazon’s infrastructure to keep their business running, greater regulations could help limit fees and control rising prices– putting more profits back in the seller’s pocket. Since the pandemic, Amazon has continuously raised prices for Amazon FBA, while also pushing Prime-certified products more than ever before–making it very difficult for sellers who utilize Fulfillment by Merchant (FBM) or 3PL to succeed. If the FTC can manage to level the playing field without destroying the Amazon resources that benefit sellers, this could be a huge win in the long run. 

Although it’s impossible to know with certainty what will come of the FTC’s case against Amazon, it’s all but guaranteed that this will generate changes in coming years. As the ecommerce industry continues to evolve and new competitors like Temu and Shein gain foothold in the market, it’s likely that the competition will continue to grow– bringing value to sellers and consumers.

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