FTC files antitrust suit against Amazon

Key takeaways

  • The Federal Trade Commission along with 17 states sued Amazon, alleging it uses illegal monopoly power.
  • The plaintiffs say Amazon's actions prevent sellers and others platforms to lower prices, overcharge sellers, degrade quality for customers, stifle innovation and create barriers to entry in the online retail market.
  • This is another FTC crackdown on big tech under the leadership of Lina Khan.

The Federal Trade Commission (FTC) along with 17 states sued Amazon (AMZN) on Tuesday, alleging that it uses illegal monopoly power to stifle competition and keep prices high, to the detriment of customers and sellers.

How Amazon exercises its Market Power ?

Specifically, they say that Amazon's actions prevent sellers and other platforms from lowering prices, overcharging sellers, degrading quality for customers, stifling innovation, and creating barriers to entry in the Amazon marketplace. online retail.

“We are bringing this action because the illegal conduct “Amazon has stifled competition in much of the online economy,” he said. said John Newman, deputy director of the FTC's Bureau of Competition.

The complaint alleges that Amazon's anticompetitive behavior occurs in two markets: the online big box market that serves buyers and the online marketplace services purchased by sellers.

This is done through anti-discounting measures, where the company retaliates against sellers who offer the same products at a lower price on other platforms, and by conditioning sellers to their preferences. eligibility for Prime services when signing up for Amazon's expensive fulfillment service.

For example, if Amazon discovers that a seller is offering cheaper products on other sites, the company can “punish” that seller. sellers by burying them so far down in Amazon's search results that they effectively become invisible to customers.

The FTC is joined by the States of Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island and Wisconsin in this action. against the e-commerce company.

One of the largest lawsuits against big tech

Tuesday's lawsuit is the FTC's latest, and potentially one of its largest, against big tech. The FTC, under current Chairman Lina Khan, has taken a more aggressive approach to antitrust enforcement, going after big tech companies such as Apple (AAPL), Amazon, Google (GOOGL), Microsoft (MSFT), and Meta Platforms (META), all of which have gained enormous influence in recent years.

Amazon, once a small online bookstore in the 1990s, has in recent years grown into a tech giant and one of the world's most valuable companies, with a market capitalization of $1.3 trillion and counting. of $500 billion in annual revenue last year. .

Khan first rose to fame in 2017 while a student at Yale Law School, where she wrote a paper alleging that U.S. regulators had failed for decades to appropriately enforce antitrust law against big companies like Amazon.

What happens if the FTC wins?

In the past, successful anti-rust solutions Lawsuits by US regulators have – at the very least – forced companies to change their practices in ways that encourage competition. Some have also led to the breakup of large companies, as was the case with AT&T in the 1980s, or to the divestiture of key business units.

But that's not the case. is probably not what's in store for Amazon.

The FTC and the States &# “We are looking to obtain a permanent injunction in federal court that would prohibit Amazon from engaging in its illegal conduct and cause Amazon to lose monopoly control to restore competition.”

Amazon shares fell by more than 3% by Tuesday afternoon, although most of the losses occurred before the FTC announcement. They have fallen about 8% over the past five days, but are up almost 47% so far this year.


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Source: investopedia.com

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