Newsletter
Amazon has just been hit with an antitrust lawsuit from the FTC making this the second major lawsuit of its kind for a company this size just this year, and one of the largest of its kind in the last 20+ years. That alone makes this a huge deal. But what does this mean for Amazon consumers? Could it impact your shopping habits? Why is the FTC even suing Amazon for antitrust violations in the first place?
There’s a lot to take in so this post will serve as an archive of the most important details of this lawsuit. And potentially the trial if it gets that far. Make no mistake though. There is a very good chance it will. The US government isn’t pulling any punches and it seemingly won’t rest until it reins things in with big tech. One only needs to look at the ongoing antitrust trial between Google and the Department of Justice to see that. With that said, here’s a breakdown of what’s happening and why to get things started.
What’s happening with Amazon and the antitrust lawsuit?
The FTC is suing Amazon for being a monopolist. Alleging that the company is anti-competitive.
Why is the FTC filing an antitrust lawsuit against Amazon?
To most consumers, Amazon is a shining beacon of light thanks to the possibility of same-day delivery and the company’s tendency to sell everything under the sun. But this is not how the FTC looks at Amazon. The FTC sees a company that has grown into an illegal monopoly that snuffs out competition. As noted in an earlier report, the FTC has been investigating Amazon for over four years. And was likely to hit the company with a lawsuit alleging that it’s engaging in antitrust practices to continue dominating the market.
The FTC has now done what was suspected it would do. Alleging that Amazon “exploits its monopolies in ways that enrich Amazon but harm its customers and sellers.” In short, the FTC is suing Amazon because it believes that Amazon is a monopoly and hurts competition.
What are the charges?
There are a multitude of charges being filed against Amazon. But the main complaint alleges that Amazon is a monopolist which stifles competition. This stems from a number of other complaints the FTC outlines in its lawsuit. For example, serving up harsh punishment to stores on Amazon that sell products lower than Amazon’s own offerings. Which lead to these stores being deprioritized in the algorithm.
The FTC also alleges that Amazon has increased fees for sellers to nearly half of every dollar made if that seller uses Amazon’s fulfillment service. Which sellers could avoid using if Amazon wasn’t pressuring them to do so. Another complaint references Project Nessie. A system that Amazon used for “monitoring spikes and trends on Amazon.com” according to an Amazon blog post from 2018. The opening section on Nessie also mentions that the project has already “extracted over [REDACTED] from American households.”
The public version of the lawsuit doesn’t detail everything about Nessie. As much of the information surrounding it is redacted. But it seems to be a secret pricing algorithm that Amazon may have been using to serve up shopping results based on gathered user data. It’s unclear if this is exactly what Nessie does (or did) and how data to feed those shopping results was gathered. Another complain alleges that Amazon pressures sellers to use its various merchant services. This could include storing products in Amazon’s warehouses. As well as allowing Amazon to fulfill the shipment of those products. The FTC also states Amazon pressures sellers into buying advertisements for their products.
All of Amazon’s tactics according to the allegations strive to achieve one overarching goal. To stop competitors from achieving the same scale as Amazon to compete as a relevant online merchant with Amazon’s level of success.
How does this hurt consumers?
The short version? Higher prices. According to the lawsuit Amazon uses a web of different tactics to force its Amazon Marketplace sellers to do things that result in price increases of products. When you shop on Amazon, you can buy directly from Amazon. In this way, Amazon buys products and resells them to you. It also offers a marketplace where third-party sellers (i.e. small businesses) sell goods on Amazon by using it as an alternative online storefront. These items will come from the third-party seller and not Amazon but can still be fulfilled by Amazon.
Often times many of these sellers can also sell the same products that Amazon sells. But one of the major complaints is that Amazon will punish sellers who try to offer lower prices. For example, a Marketplace seller might be trying to sell its handmade pottery at a lower price on its own website than what it charges on Amazon. Amazon then makes it hard for buyers to find that seller on Amazon’s marketplace. Forcing the seller to raise prices. Which then results in the consumer having to pay higher prices for the item regardless of who they buy from.
The FTC has the support of 17 states for its antitrust lawsuit
The FTC was reportedly gathering support from as many states as possible before filing the lawsuit on Tuesday, September 26. In total it has gathered the support of 17 different states. This includes Connecticut, Delaware, Maine, Massachusetts, Michigan, Minnesota, Nevada, New Hampshire, New Jersey, New Mexico, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, and Wisconsin.
What is Amazon’s response to the allegations?
Amazon is essentially saying that the US government doesn’t understand its laws. Stating that this lawsuit will not only hurt the economy, but it also hurts Americans and small businesses. Senior Vice President of Global Public Policy & General Counsel David Zapolsky says the FTC’s focus has “departed radically” from its main goal of ensuring consumers are protected. Zapolsky continues in a separate post that if the FTC “gets its way” that it will lead to higher prices and slower deliveries on top of hurting businesses.
Further stating that the FTC “grossly mischaracterizes the retail industry and the dynamic competition that consumers benefit from every day.” He notes that consumers still buy most of their products from physical stores, with around 80% of the shopping being done in person at local retailers.
Basically Amazon is saying you’ll end up having to pay more for the products you buy on its online marketplace. And that you’ll need to wait longer for shipments to arrive. Additionally, it’s suggested that this lawsuit will force Amazon to raise prices if it goes the FTC’s way. “We fundamentally disagree with the FTC’s allegations—which are in many cases wrong or misleading—and with their overreaching and misguided approach to antitrust, which would harm consumers, hurt independent businesses, and upend long-standing and well-considered doctrines,” Zapolsky states.
What does Amazon stand to lose?
Amazon could end up facing a number of different outcomes if the FTC were to win a case. Should the lawsuit end up going to trial, which isn’t happening just yet. But just for a second let’s imagine that it is. What could happen to Amazon?
Well nothing would happen to Amazon in the grand scheme of things. It wouldn’t just up and disappear overnight. It’s much too big for that. Chances are it would still operate as a business and offer to sell you stuff online. But it could end up facing some radical shifts to how it does things now. For example, the FTC could force Amazon to break up its different businesses.
It’s also possible that the FTC could simply force Amazon to change its practices. Specifically by stopping what the FTC is alleging Amazon is doing in the lawsuit. If that were to happen, then it’s entirely possible Amazon would come up with a plan to meet the FTC’s requirements. Propose that plan, and then wait for a response.
At the end of the day it’s much too early to tell what would happen to Amazon. If anything. Worth noting is that the FTC brought cases against both IBM and Microsoft in the past and lost both those cases. However, Amazon is much larger than either of those two companies were when those lawsuits were filed and their corresponding trials began. So there could certainly be more precedent for the government to come down on Amazon harder.
Will this impact the way you shop on Amazon?
Someday? Maybe. But in the immediate term, no. For now Amazon is going to continue operating as it always has. There’s also the fact that this case isn’t likely to be a quick one. It wouldn’t be surprising to see it takes a few years before it’s over. Another thing to consider is that Amazon could choose to settle the case if it reaches an agreement with the FTC on certain terms. And if Amazon settles than it never goes to trial.
But even a settlement could take a long time to get to. When or if that did happen, Amazon may end up having to make changes to its website to appease the FTC. But that wouldn’t necessarily be a bad thing for Amazon. It’s hard to know how this will impact Amazon so early on. It could end up proving to be a positive set of changes. Even if the company is forced to change the way its retail business works. And even if it were to win a case that went to trial, a win could do harm to Amazon’s reputation and company overall.
There are a few things to keep in mind for now. The way shopping works on Amazon isn’t changing for the time being. And it’s much to early to tell if this case will hurt Amazon’s business in any way. You’ll still be able to place orders for stuff on Amazon. As well as use its benefits like Prime shipping, while getting discounts on certain items as a Prime member.
The case as it happens (article updates)
October 3, 2023: Amazon inflated prices with secret Project Nessie algorithm
When the lawsuit was initially filed back in September, Project Nessie was mentioned but there wasn’t a lot of detail about what it was or what it did. Most of the important information in the lawsuit filing is redacted. All that was suspected at the time is that Nessie was apparently a pricing algorithm that Amazon would use to monitor spikes and trends on Amazon. But a new report claims Project Nessie was much more than that.
Nessie wasn’t just monitoring spikes and trends. But instead, according to the report information, Project Nessie was being used to inflate prices on Amazon so consumers would have to pay more for products. Nessie would first artificially inflate prices on items. These would usually be for items that were also available at other retailers. And across all shopping categories. This is where the “monitoring spikes and trends” comes in. After the artificially inflated prices, Nessie would watch other retailers.
If they followed Amazon’s lead and raised pricing, then Amazon would continue to list the higher price. Which resulted in consumers having to pay more no matter where they shopped. If other retailers didn’t increase prices then Nessie would revert pricing on Amazon back to normal. But only when it had to.
….more info coming…..