Amazon shares fell more than 4 percent after The Federal Trade Commission (FTC), along with 17 states, sued the online retail giant on Tuesday, accusing the company of using illegal and anticompetitive tactics to entrench its monopoly in violation of antitrust laws.
The government alleged that Amazon stifled competition and systematically excluded competitors from challenging its dominance in the online retail market.
“Our complaint lays out how Amazon has used a set of punitive and coercive tactics to unlawfully maintain its monopolies,” FTC Chair Lina M. Khan said in a statement. “Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them.
The case is the latest from the Biden administration that aimed to challenge what it describes as monopolies that stifle competition. Earlier this month, the Justice Department went ahead with a trial alleging that Google violated antitrust laws by abusing its dominance.
Amazon, which launched in 1995 as an online bookseller based in Bellevue, Washington, has grown to become one of the world’s largest retailer with a value of nearly $1.3 trillion, where you can shop for anything from soap to computers to thousand-dollar suits.
On Tuesday, the FTC argued that Amazon reached the pinnacle of that power and influence through anticompetitive practices that appear in its online market for shoppers and businesses that sell products on its platform.
The company keeps prices higher by deterring online sellers who offer cheaper alternatives by burying their results on its platform making them “invisible,” the FTC claimed. Amazon made it expensive for sellers to sell products on other platforms when they are part of its fulfillment service, which then makes it tougher for these businesses to compete against the retailer.
The regulator also accused Amazon of “deliberately” flooding a customer’s search results with ads that make it a less pleasant experience when they search for products on the platform. The company also elevated its own products over others that might be of better quality in its search results and charges sellers fees that are about 50 percent of their revenues, the FTC alleged.
“Today’s lawsuit seeks to hold Amazon to account for these monopolistic practices and restore the lost promise of free and fair competition,” Khan said in a statement.
Amazon, in a statement, said the FTC was departing from its historical role of protecting consumers and encouraging competition by suing the company.
“The FTC’s complaint alleges that our pricing practices, our Fulfillment by Amazon offering, and Amazon Prime are anticompetitive. In so doing, the lawsuit reveals the Commission’s fundamental misunderstanding of retail,” David Zapolsky, Amazon’s general counsel, said in the statement.
The retailer argued that its practices are about promoting competitive prices. It said the FTC was wrong when it said the company’s approach led to higher prices and showed a misunderstanding of how competition works.
“The FTC has it backwards and if they were successful in this lawsuit, the result would be anticompetitive and anti-consumer because we’d have to stop many of the things we do to offer and highlight low prices,” Zapolsky said.
The company, which said it had 500,000 independent businesses that generated 60 percent of sales on its platform, offered sellers the ability to sign up to its logistics network through its Fulfillment by Amazon service. The service, which the FTC alleges adds costs to sellers as part of the condition to join the “Prime” offering, was a choice and was not coerced upon businesses. Prime service was good for consumers and the FTC was wrong to suggest that its anticompetitive.
“Our customers love Prime,” Zapolsky said. “This has been good for competition, consumers, and sellers in our store, and we’ll vigorously oppose any attempt to degrade or destroy Prime.”
Part of Amazon’s counter-argument is that the FTC fails to understand the retail business in its suit. The company labeled the regulator’s case as “overreaching.”
“We will contest this lawsuit,” Zapolsky said.
At a Bloomberg event on Tuesday, FTC’s Khan was asked whether the “structural relief” that the agency was seeking in the case implied a breakup of the company.
“At this stage, the complaint is really focused on the issue of liability. We lay out a scheme that we believe violates the U.S. antitrust laws,” Khan said. “Ultimately, you will want to make sure that any remedy is halting the illegal conduct preventing a recurrence and ensuring that Amazon is not able to profit and benefit from its illegal behavior.”
“When we get to the issue of remedy, those are going to be the principles we’ll be focused on,” Khan added.
Amazon shares were down more than 4 percent at the close of trading in New York on Tuesday.
Update 9/26/23, 18:00 p.m. ET: This story has been updated to add context, background and additional comments from FTC’s chair Lina Khan.