Amazon Sued by FTC, Alleging Illegal Online Shopping Monopoly

The Federal Trade Commission and 17 U.S. states filed a lawsuit on Tuesday alleging Amazon illegally and unfairly operates a monopoly over e-commerce that has harmed its rivals.

Filed in a Seattle federal court, the civil suit is the latest major antitrust push by the Biden Administration's FTC.

The suit alleges Amazon has shown an ongoing pattern of undercutting its competitors and alleges Amazon used its monopoly power to inflate prices on its platform and degrade product quality.

"It’s really about proving harm to sellers, not harm to consumers," said Justin Hurwitz, Director of Law and Economics Programs at the nonprofit institute, International Center for Law & Economics.

Specifically, the suit alleges that Amazon has used its platform dominance to squeeze small businesses and thwart competitors. Although small, independent third-party businesses account for over 60% of all sales on the platform, Amazon collects half of every $2 they earn while degrading their organic marketplace growth to ensure these sellers remain dependent on paid advertising to reach customers.

"Amazon’s actions allow it to stop rivals and sellers from lowering prices, degrade quality for shoppers, overcharge sellers, stifle innovation, and prevent rivals from fairly competing against Amazon," the FTC wrote in a statement.

"Our complaint lays out how Amazon has used a set of punitive and coercive tactics to unlawfully maintain its monopolies," said FTC Chair Lina Khan.

"It’s counterintuitive that these harmful practices haven’t pushed the 30,000 small businesses using Amazon storefront to alternative platforms," the FTC said.

However, Amazon uses an "unlawful monopolistic strategy" to fend off competition, the suit alleges. The platform allegedly engages in anti-discounting tactics to discourage rivals from offering lower prices, including a now-discontinued supplier contract requirement and a "sophisticated surveillance network of web crawlers" that patrols the web to punish sellers if they offer lower prices for the same product elsewhere, the FTC alleges.

With a self-reported catalog of over 2.5 million products, the retailer's anti-discount practices effectively ensures that the platform, through its fees on sellers, can continue to inflate the price of items sold not just on Amazon but everywhere else.

Nonprofit legal organization International Center for Law & Economics President and Founder Geoffrey A. Manne said that while the suit wasn't unexpected, but the scope of it is more surprising.

"If successful, the FTC’s suit could profoundly undermine central features of the Amazon retail platform," Manne said in an email.

David Zapolsky, Amazon Senior Vice President of Global Public Policy and General Counsel, said in a statement that the suit "makes clear the FTC’s focus has radically departed from its mission of protecting consumers and competition."

"The practices the FTC is challenging have helped to spur competition and innovation across the retail industry, and have produced greater selection, lower prices, and faster delivery speeds for Amazon customers and greater opportunity for the many businesses that sell in Amazon’s store. 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. The lawsuit filed by the FTC today is wrong on the facts and the law, and we look forward to making that case in court."

Because of the scope and size of the suit, it will likely take some time to litigate, legal expert Hurwitz explained.