Amazon sued by FTC and 17 states for wielding 'monopoly power'

The Federal Trade Commission (FTC) and 17 states filed a lawsuit against Amazon.com Inc. Tuesday, claiming the retail giant operates a monopoly and engages in anticompetitive practices to maintain its dominance in the market.  

The attorneys general who have signed on to the lawsuit include representatives from Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island and Wisconsin. 

The lawsuit, filed in Western Washington District Court, claims the company engages in “exclusionary conduct” that stifles existing competition and prevents new competitors from entering the market, the FTC said in a press release. Amazon allegedly does this by “stifling competition on price, product selection, quality and by preventing its future rivals from attracting a critical mass of shoppers and sellers,” the complaint said.  

“Our complaint lays out how Amazon has used a set of punitive and coercive tactics to unlawfully maintain its monopolies,” said FTC Chair Lina M. Khan. “The complaint sets forth detailed allegations noting how 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. Today’s lawsuit seeks to hold Amazon to account for these monopolistic practices and restore the lost promise of free and fair competition.” 

Amazon refuted the FTC's claims, in a statement from David Zapolsky, the Seattle-based retailer's senior vice president of global public policy and general counsel.  

“Today’s 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,” Zapolsky said. “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.” 

The National Grocers Association (NGA), the trade association for independent food retailers and wholesalers, on Tuesday applauded the FTC's legal action against Amazon. 

“The FTC’s complaint against Amazon highlights the urgent need for antitrust enforcement," Chris Jones, NGA's SVP of government relations and counsel, said in a statement. "Amazon’s dominance in the digital realm mirrors the tactics seen by powerful grocery chains on Main Street. In both instances, these large gatekeepers leverage their size and market power to extract favorable terms and exclusive deals with vendors, undermining competition and harming consumers. Whether it's the digital marketplace or brick-and-mortar retail, the FTC's move underscores the vital importance of ensuring that consumers benefit from a variety of choices, competitive pricing, and fair market environment that empowers both independent businesses and the consumers themselves.”

FTC Bureau of Competition Deputy Director John Newman said in a statement the stifled competition brought about by Amazon’s alleged anticompetitive practices can be seen “across a huge swath of the online community."

“Amazon is a monopolist that uses its power to hike prices on American shoppers and charge sky-high fees on hundreds of thousands of online sellers,” Newman said in a statement. “Seldom in the history of U.S. antitrust law has one case had the potential to do so much good for so many people.” 

The lawsuit claims the anticompetitive conduct takes place on Amazon's online superstore market, which is used by Amazon shoppers, and its online marketplace services, which are used by the company’s sellers. 

The FTC said Amazon uses anti-discounting measures to punish sellers and prevent others from entering the market. “For example, if Amazon discovers that a seller is offering lower-priced goods elsewhere, Amazon can bury discounting sellers so far down in Amazon’s search results that they become effectively invisible,” the FTC said.  

It also noted that the company “conditions” their sellers’ ability to gain eligibility for “Prime” status for products, which the FTC says is “a virtual necessity for doing business on Amazon.”  

The practice, used on sellers using Amazon’s costly fulfillment service, “has made it substantially more expensive for sellers on Amazon to also offer their products on other platforms," the federal agency said. 

“This unlawful coercion has in turn limited competitors’ ability to effectively compete against Amazon,” the FTC said. 

The company also “extracts enormous monopoly rents from everyone within its reach,” the FTC added, noting that the company replaces relevant, organic search results with paid advertisements and intentionally promotes “junk ads.”  

Amazon also allegedly biases search results to direct online traffic to its own products and charges high fees to sellers who rely on the online giant to sell their products. “These fees range from a monthly fee sellers must pay for each item sold, to advertising fees that have become virtually necessary for sellers to do business,” the FTC said in a statement. “Combined, all of these fees force many sellers to pay close to 50% of their total revenues to Amazon. These fees hard not only sellers but also shoppers, who pay increased prices for thousands of products sold on or off Amazon.”

UPDATE: This story has been updated to add a statement from the National Grocers Association.