The alleged market excludes perishable grocery products because the agencies claim that the consumer experiences are different. Specifically, consumers must pick a specific time for delivery of perishable groceries and there must be a person present to receive the order.
The Court will ultimately need to assess whether single-brand online stores or brick-and-mortar stores are substitutes for online superstores. Amazon may argue that the agencies’ alleged markets are “gerrymandered.” It could contend, for example, that the agencies defined the markets to aggregate non-substitutes in alleging that high-end products like televisions are treated the same as less expensive consumable products like thumb tacks. For example, consumers may cross-shop Amazon, Best Buy, Walmart, Costco, Target, LG, and Samsung when making larger purchases such as computers or televisions, but not for thumbtacks.
Online Marketplace Services. The complaint alleges that Amazon has monopoly power in the online marketplace services market, which encompass a suite of services that facilitate an online merchant’s sales to shoppers.
It states that online marketplace services offer sellers a “distinct set of services” that enable merchants to engage and transact with shoppers. The agencies argue that online marketplace services include (1) access to a significant U.S. customer base, (2) an interface for consumer search to discover and buy products, (3) the ability for sellers to set prices, (4) the ability for sellers to create and maintain product detail pages with product information; and (5) the ability for sellers to display customer-generated ratings and reviews.
The agencies further allege that Amazon’s monopoly power is shown through its ability to profitably degrade the quality of its services while raising prices for both shoppers and sellers without losing much business to rivals. For example, they allege that Amazon has “flood[ed] its search results page with paid advertisements,” “bur[ied] organic content under recommendation widgets” to display Amazon’s private label products over other labels, and hiked seller fees.
Barriers to Entry. According to the agencies, Amazon’s dominant positions are protected by significant barriers to entry, including scale economies and network effects, reputational barriers, and switching costs. The agencies claim that the importance of scale and network effects are shown via the “self-reinforcing dynamic” of valuable features such as user-generated reviews and access to shopper and seller data. For example, more shoppers means more product ratings and reviews, which in turn attracts more shoppers.
Courts have previously treated “substantial” barriers to entry as a requisite for proving monopoly power. In other words, high market shares are not sufficient. The Court in both Microsoft and Meta recognized that preventing rivals from entering the market can be a component in maintaining a monopoly. The agencies here have alleged both direct network effects and high switching costs as barriers to entry. They also point to a feedback loop between online superstores and online marketplace services that allegedly amplifies the importance of scale and network effects in these markets. Increasing scale in one market can make it easier to grow in the other. For example, companies would be able to increase the breadth and depth of product selection needed for online superstores by leveraging their marketplace to offer products sold by third-party sellers. Thus, the agencies reason that prospective entrants face a “chicken-and-egg” problem: entrants must attract enough sellers to offer sufficient product selection to attract shoppers, but must also generate enough shopper traffic to attract those sellers in the first place.
Anticompetitive Conduct & Effects
According to the complaint, Amazon illegally maintained its monopolies through an interrelated course of conduct that stifled competition.
Anti-Discounting
The complaint argues that Amazon restricted price competition through contractual and algorithmic tactics that made it difficult for competing online superstores to offer lower prices. The agencies allege these strategies created a price floor that harmed competitors, sellers, and consumers.
According to the complaint, Amazon’s price-tracking team crawled the internet, monitored sellers’ pricing, and punished sellers who failed to comply with its pricing policies. When Amazon detected a lower price on other online stores, it allegedly punished those sellers by removing them from the “Buy Box,” a design feature that allows a purchaser to buy a product directly on the product detail page.
Additionally, Amazon allegedly restricted sellers from offering lower prices on other online stores through its “Amazon’s Standards for Brands” (ASB) program. If a seller violated of ASB, Amazon could place it lower in search rankings or even ban the seller from using Amazon Marketplace outright.
Alongside these anti-discounting tactics, the agencies argue that Amazon deployed an algorithm, called “Project Nessie,” to identify specific products and raise prices in a way that induced competitors to follow suit.
In the last few years, agencies have been on the lookout for algorithms that could facilitate anticompetitive conduct. In February 2023, Principal Deputy Assistant Attorney General Doha Mekki of the Antitrust Division of the U.S. Department of Justice (DOJ) highlighted the concerns over algorithms that “lead to tacit or express collusion in the marketplace, potentially resulting in higher prices, or at a minimum, a softening of competition.”
Previously, the government has prosecuted companies that used algorithms to coordinate prices. For example, in United States v. Topkins, DOJ alleged that competing sellers of wall posters used an algorithm-based pricing software to increase the prices of posters sold online. However, the Amazon allegations are different because these involve the unilateral use algorithms to monitor prices across different platforms and independently raise prices. This suggests that the agencies are increasingly skeptical of algorithmic pricing, regardless of whether it is the result of an agreement.
Fulfillment by Amazon
The agencies also allege that Amazon conditioned sellers’ Prime eligibility on their use of Amazon’s fulfillment service (FBA). They claim that because most Amazon users are Prime members, sellers must use FBA to make sufficient sales. The agencies argue that this conditional usage of FBA prevents independent fulfillment providers from scaling and effectively competing with Amazon.
Search Results, Shopping Experience, and Ad Load
The agencies claim that Amazon degrades the quality of search results and customer experience by burying organic search results between its recommended products and a supracompetitive number of advertisements. For example, the complaint states that Amazon “intentionally warps” its algorithms to hide helpful, objective, and expert reviews from shoppers.
Harm to user experience is a logical extension of harm based on price effects. In 2020, the FTC alleged that Facebook maintained a personal social networking monopoly, which allowed it to degrade user experience and decrease product quality without losing market share. This theory of harm is consistent with the 2010 Horizontal Merger Guidelines, which recognize that market power can manifest itself through non-price terms and conditions, including “reduced product quality.”
Top Takeaways
According to the complaint, Amazon’s conduct degrades users’ shopping experience, increases prices for shoppers and sellers, and chills competition including multihoming. Enforcers seek injunctive and structural relief, including likely seeking a breakup if successful on the merits. Amazon vigorously refutes the allegations of anticompetitive conduct and harm. In its public statement responding to the lawsuit, Amazon argues that the agencies mischaracterize the retail market and misunderstand its procompetitive practices that bring low prices to customers and allow independent sellers and fulfillment services to succeed.
The Federal Civil Enforcement Committee will continue to provide updates and analysis as this case unfolds.
