UPDATED: Amazon Faces Backlash for Alleged Abusive Practices
UPDATE 07/26/2023: A win for UK sellers! 🇬🇧💪
Amazon on Wednesday offered concessions to the UK Competition and Markets Authority (CMA) to settle an open antitrust probe.
In 2022, an investigation was launched by the CMA against Amazon, with claims asserting that the retail giant was engaging in practices that exploited its dominant market position, particularly concerning its marketplace operations.
The focal points of the British regulator’s inquiry revolve around three key aspects.
- The questionable methods employed by Amazon to gather and utilize data from third-party sellers, and whether the company uses this intel to gain unfair competitive advantage in deciding what products to sell (for its own brands, for example) and how to set prices.
- The investigation also centers on scrutinizing how the eligibility criteria for selling under the Prime label are established. Prime offers certain benefits, such as free and fast delivery, that are only available to Prime members, putting non-Prime users at a disadvantage.
- Amazon’s “secretive and self-preferencing” process for selecting products in the “Buy Box.” The company uses a set of (undisclosed) criteria to determine which products are granted the coveted position of being the first choice in the “Buy Box.” For customers, this box holds prime real estate on product pages, offering convenient “Buy Now” or “Add to Basket” options exclusively from a particular seller, which could be Amazon itself.
To address these concerns, Amazon has offered to:
- Restrict its use of data concerning marketplace sellers. By doing so, the retail giant aims to prevent any unfair advantage for its own retail business over other sellers within its marketplace.
- Treat all products equally when Amazon decides which ones will be featured in the Buy Box. This proposal, if accepted, will grant sellers a fair opportunity to have their product offers prominently showcased in the coveted box, even when contending with Amazon’s own product offerings.
- Allow sellers to directly negotiate their preferred shipping rates with Prime delivery service providers so that they can offer affordable delivery fees to customers.
- Together with CMA, appoint an independent trustee to conduct regular compliance monitoring.
The CMA is currently engaging in a consultation process regarding Amazon’s offers, prior to reaching a final decision on their acceptance. If accepted, Amazon would dodge yet another big antitrust case in Europe.
In December 2022, Amazon reached a final deal with the European Commission over similar antitrust investigations into its use of seller data, Buy Box algorithm, and eligibility criteria for Prime, thereby avoiding a fine of up to 10% of its total revenue.
Amazon may have survived these EU antitrust cases unscathed, but a bigger threat looms over its US eCommerce operations with the Federal Trade Commission (FTC) finalizing a lawsuit that could break up the company. See report below.
UPDATE 06/29/2023: Amazon could soon face a major antitrust lawsuit as the Federal Trade Commission (FTC) inches closer to taking action. 🥊
FTC chair Lina Khan and her team of investigators have dedicated months to finalizing a complaint against the dominant eCommerce firm. The complaint alleges that Amazon manipulates its influence by favoring third-party sellers who utilize its logistics services while penalizing those who opt not to, as reported by Bloomberg.
The agency is also currently conducting an inquiry into an algorithm responsible for selecting brands to feature in the highly sought-after “Buy Box” on Amazon.com. This means that if there are multiple offers on the same listing, one seller’s offer is given priority over others, allowing consumers to effortlessly add to cart in a single click, streamlining their shopping experience.
The anticipated antitrust lawsuit is similar to a 2020 report presented by a subcommittee within the US House, in which Khan was listed as a team member. These allegations also align with a concurrent antitrust lawsuit in Europe, accusing Amazon of granting preferential treatment to sellers utilizing its fulfillment services and leveraging sellers’ sales data to bolster its own retail operations.
In the event that the Commission successfully provides evidence of Amazon engaging in deliberate market manipulation within an industry where it possesses monopolistic influence, it opens the possibility for advocating for the company’s dissolution or restructuring. This stance also indicates Khan’s reluctance to accept concessions from Amazon – something that the company did to resolve the EU antitrust case.
Amazon reportedly reached a settlement where they agreed to modify their Buy Box practices and impose limitations on the utilization of data obtained from 3rd-party sellers on their online EU marketplaces.
However, when it comes to the US market, Khan has expressed clear opposition to adopting similar compromises. During her testimony to a Senate committee last year, she firmly stated that the FTC would strongly oppose and disapprove of such legal remedies.
This forthcoming lawsuit is not the first encounter between the FTC and Amazon.
Over the past couple months, the agency has initiated three distinct and unrelated cases against the eComm giant.
- Amazon resolved the first accusation, which involved claims of unauthorized surveillance on customers through its Ring brand doorbells.
- The company faced allegations of violating child data privacy laws with its Alexa technology.
- In a separate instance, the FTC filed a new case last week, accusing the retailer of engaging in deceptive practices concerning its subscription services.
Amazon Braces for the Massive Antitrust Case
When Khan took over the FTC in 2021, she initiated a new approach to the agency’s antitrust probe of Amazon. She actively contributed to formulating key interrogative points for the investigative team, personally selected John Newman as co-lead investigator, and re-interviewed nearly 30 individuals employed by the retail giant.
Khan’s stringent stance and handling of the Commission earned her the ire of Amazon, accusing her of showing bias, and thus must recuse herself from the case. Amazon also tried to derail antitrust investigations by allegedly launching an offensive against the tech-focused antitrust legislation proposed by Congress, a source told Bloomberg.
In 2022, Amazon and other big tech firms invested $20 million in lobbying efforts, alongside initiating an ad campaign and mobilizing sellers in the home states of lawmakers to publicly resist the proposed bills.
Aside from criticisms, Amazon has also poached former FTC employees to gain intel, the NY Post reported.
According to informed sources, the former FTC officials who left the organization to pursue opportunities at Amazon have been greatly influenced by Khan’s distinctive managerial style.
Khan’s leadership approach has generated discontent among FTC employees, with certain staff members characterizing the 34-year-old chair as an authoritative figure with a management style that is deemed “tyrannical” and “abusive” according to the above referenced article.
“If people are displeased with leadership, it makes you more inclined to listen to offers,” former FTC chair William Kovacic told the NY Post.
While the ex-FTC employees are prohibited from working on the case, they can share insights into “key players, who is making decisions, the mood of the agency, prevailing attitude of enforcement, overall sense of how stretched an agency is in using resources, and many people they can deploy on a given matter,” Kovacic said.
All of this shows Amazon’s profound concern regarding the challenges posed by the FTC. The anticipated antitrust case accusing Amazon of playing favorites, in particular, holds the potential to have significant ramifications for the company. The outcome of this legal battle has the power to change the eCommerce landscape moving forward.
Amazon is under fire for allegedly copying top sellers for its private label business, manipulating the Buy Box algorithm, and price fixing. 🔥
Using Seller Data to Copy Products
Mounting evidence from investigative reports suggests that Amazon has deliberately utilized third-party seller data, such as sales velocity and customer information, to launch competing products and then rigged search results in their favor.
In 2020, Wall Street Journal released a report detailing how some Amazon private label employees used data about independent sellers to create knockoffs despite it being both an antitrust and company policy violation.
Amazon reps have denied these accusations. Former Amazon CEO Jeff Bezos himself told Congress in 2020 that the company forbids its employees from using exploitative practices to boost its private label business.
However, in March 2021, Peak Design company founder & CEO Peter Dering called out Amazon for releasing an imitation of its most popular product, the Everyday Sling Bag.
In an interview, Dering told CNBC that Amazon “copied the general shape, they copied the access points, they copied the charcoal color, and they copied the trapezoidal logo badge. But none of the fine details that make it a Peak Design bag were things that they could port over because those things take a lot more effort and cost.” 🤦♀️
To poke fun at Amazon’s copycat ways, Peak Design posted a video that went viral and was even featured on John Oliver’s Last Week Tonight. The brand’s supporters bombed the knockoff version with negative reviews, forcing Amazon to have it removed from its private label catalog.
Another evidence that could prove Amazon’s anticompetitive behavior is its alleged covert strategy for its Indian marketplace in 2016.
Published in October 2021, a report from Reuters shows that in India, creating copycats and manipulating search results to put the tech giant’s in-house products at the top were part of a clandestine strategy called the “Solimo” project, which was reviewed by two Amazon execs – Diego Piacentini and Russell Grandinetti – in 2016.
Based on the internal documents examined by Reuters, part of the Solimo strategy was to “use information from Amazon.in to develop products and then leverage the Amazon.in platform to market these products to customers.” The company also reportedly teamed up with the manufacturers of the products targeted for imitation to ensure their quality.
However, Amazon has again denied these claims saying that they are “factually incorrect and unsubstantiated” as Reuters was unable to provide a copy of the internal documents in question. 🤔
Amazon may continue to deny the allegations shown in these reports, but in recent years, more and more independent sellers have come forward to expose the company’s abusive practices. More on that in the next section.
Manipulating the Search Algorithm
According to a report from The Markup, a non-profit newsroom, Amazon places its own products and brands exclusively selling on the platform ahead of third-party sellers, even those with higher sales and customer ratings. 😦
For instance, a coffee grinder seller shared that after Amazon introduced a competing product from AmazonBasics and another from an exclusive brand, the products ranked high on search right away.
He believes that the products rank well because they’re an Amazon brand.
Amazon has long denied that it is giving preference to its own products over independent sellers on its retail site.
“We display search results based on relevance to the customer’s search query, irrespective of whether such products have private brands offered by sellers or not,” Amazon said.
However, the findings in Markup’s report seem to contradict this statement.
Apparently, the researchers could easily tell whether a product was an in-house or exclusive brand because in 7 out of every 10 cases, Amazon would place it first on the search results page.
“These listings are not visibly marked as ‘Sponsored’ and they are part of a grid that Amazon identifies as search results in the site’s source code. We only analyzed products in that grid, ignoring modules that are strictly for advertising.” The Markup explained.
So, it doesn’t matter if you’re a top seller with excellent customer ratings. When predicting the first spot, being an Amazon private label brand or exclusive brand influenced search ranking more than customer reviews or star ratings.
Unfortunately, Amazon making cheaper versions of the best-selling products from sellers and giving higher priority to them can hurt businesses, especially the little guys.
It demolishes the level playing field. And by Amazon eating into your market share, your sales may go down, which has a direct impact on your ranking and your business as a whole.
Price fixing is an anticompetitive behavior where competitors agree to lower, maintain, or increase prices, thereby taking away the opportunity to compete freely in the market and to fix your price levels based on supply and demand.
On September 14, 2022, California filed a lawsuit against Amazon for forcing sellers and suppliers into inflating their prices. Those who fail to comply (e.g., sellers who opt to offer lower prices elsewhere online) may get penalized.
This has resulted in consumers paying for overpriced products for years, the state claims.
Filed by California state Attorney General Rob Bonta, the lawsuit aims to stop Amazon from “bending the market to its will at the expense of California consumers, small business owners and a fair and competitive economy.”
As usual, Amazon has denied any antitrust violation and claimed that a similar case in the District of Columbia was junked and that Bonta has got it all wrong.
“Sellers set their own prices for the products they offer in our store,” an Amazon spokesperson said in a statement.
“Like any store we reserve the right not to highlight offers to customers that are not priced competitively.”
California isn’t the only one that’s currently suing Amazon over price fixing, though.
In the UK, Amazon also faces a class-action suit to put a stop to its “secretive and self-preferencing” Buy Box algorithm, which the company uses to boost its own products (and sales).
Similar to the California case, this has made customers pay more by hiding better deals.
Seeking $1 billion in damages, the lawsuit will be filed by Hausfeld & Co by October 31st at the Competition Appeal Tribunal.
Sellers and Industry Groups Band Together to Fight Amazon
Many sellers and industry groups like Online Merchant Guild (OMG) have been organizing to launch antitrust probes into Amazon.
For instance, OMG recently won a sales tax lawsuit against Amazon in Pennsylvania court, thereby prohibiting the state and its marketplace facilitator, which in this case is Amazon, from collecting sales tax nexus that online remote sellers supposedly owe from previous years.
Meanwhile, since 2019, a group of sellers led by SmartScout CEO & Founder Scott Needham has been communicating their needs to the Justice Department and the Federal Trade Commission.
In a statement to Business Insider, Needham said: “We’re a group of sellers or kind of a movement,”
“We are trying to unify the voice and just make sure that us who contribute to the Amazon marketplace are listened to as well.”
That may come true if the US antitrust bill, S.2992, is passed into law.
Amazon has also reportedly reduced its private label catalog due to poor sales and possibly to appease antitrust regulators. The company has also offered concessions to halt two EU antitrust probes, recent moves that could set more pro-seller changes in motion. 🚀