Last week, the Federal Trade Commission and 17 state attorneys filed a landmark antitrust lawsuit against Amazon, accusing the company of engaging in anticompetitive practices that cause harm to third-party sellers and consumers by limiting choice and increasing cost.
At the center of the case are two features popular with consumers: the “Buy Now” button and the shipping component of Amazon Prime. The FTC is arguing that Amazon undergoes an imbalance of power in its business model for sellers: making it easier to sell through them, and entirely through them, by making it very difficult to sell anywhere else. This cycle, the complaint argues, stifles competition, reinforces an unfair monopoly, and harms sellers and consumers.
Amazon, however, told Entrepreneur in a statement that the practices the FTC is challenging “have helped to spur competition and innovation across the retail industry,” the company 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.”
Karen Weise, a technology correspondent for The New York Times, explained on a Monday podcast episode of The Daily that the “Buy Now” feature is under scrutiny by the FTC because of the subsequent punitive measures imposed on sellers who may sell their product elsewhere.
“Amazon has these machines that go across other websites, and if they find it’s even one penny less elsewhere, they will essentially punish the seller for that happening,” Weise said on the podcast.
What a consumer typically encounters on a product page on Amazon are the prominent orange and yellow buttons like “buy now” or “add to cart,” enticing the user with easy, quick routes to get the products they want as fast as possible. This amalgamation of buttons is referred to as a “buy box,” Weise explains.
The government is alleging that Amazon has utilized this buy box and these buttons as a means to “prevent price discounts across the internet,” and essentially uses machines that scour the web to see if a seller’s product is available on another website.
The complaint argues that this cycle of reinforcement and punishment has an adverse effect across the internet by creating an “artificial price floor,” subsequently raising costs elsewhere.
The second major element of Amazon’s business model at the focal point of the case is Prime, specifically Amazon’s Fulfillment Program for sellers, which the government argues “coerces” vendors into using and subsequently prevents other retailers from garnering scale and mutually reinforces Amazon’s monopoly.
Essentially, for a seller to get the verified checkmark that lets a consumer know its a Prime product, they must be enrolled in Amazon’s Fulfillment program — wherein Amazon takes care of storing, packing, and delivering the products quickly to customers. However, opting out of the Fulfillment program also comes with punitive measures, the complaint states.
Related: Amazon Takes 50% Cut From Each Seller Sale On Average, New Study Says
Amazon also allegedly engaged in other tactics that contributed to the reinforcing cycle of its monopoly. On Tuesday, The Wall Street Journal reported that Amazon allegedly employed an algorithm called “Project Nessie” to gauge the extent to which it could increase prices without losing customers to competitors, according to redacted details from the FTC’s lawsuit. The algorithm was used to boost profits across various shopping categories and encouraged rivals to raise their prices. If competitors didn’t match Amazon’s prices, the algorithm would automatically revert items to their normal prices.
However, in a statement to Entrepreneur, Amazon stated that the allegations “grossly mischaracterized” the tool, and was removed years ago.
“Project Nessie was a project with a simple purpose—to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable,” Tim Doyle, a spokesperson for Amazon stated. “The project ran for a few years on a subset of products, but didn’t work as intended, so we scrapped it several years ago.”
