Amazon is accused of forcing up prices for independent merchants in antitrust complaint
In a letter sent to federal lawmakers, an online merchant has accused Amazon.com Inc. of forcing him and other sellers to use the company’s expensive logistics services, which in turn forces them to raise prices for consumers.
The 62-page document lays out an antitrust case that emphasizes harm to consumers — the traditional basis for such cases in the U.S. Until now, antitrust experts have suggested that Amazon was not vulnerable to such an argument and that regulators would need to find another way if they wanted to restrain the company’s growing market power.
The complaint, based on an analysis of thousands of Amazon transactions over several years involving more than 100 products, turns all of that thinking on its head. It accuses Amazon of “tying” its marketplace and logistics services together, an antitrust violation in which a company uses dominance in one market to give itself an advantage in another market where it’s less established. The letter refers to previous Supreme Court rulings on tying, including one against Kodak in 1992 that said the photocopier manufacturer violated antitrust laws by forcing customers who bought its machines to also use its parts and repair services.
“When it comes to Amazon’s dealings with third-party merchants, some of the conduct actually does lend itself to antitrust scrutiny,” said Hal Singer, an antitrust expert and Georgetown University adjunct professor retained by the merchant to work on the analysis. “If you can connect the conduct to some measurable harm, in this case increased prices, that gets you into the antitrust ballpark.”
Amazon, in an emailed statement, disputed many of the merchant’s allegations, saying its logistics prices are competitive and its sellers aren’t penalized for using other delivery options. “Amazon has invested tens of billions of dollars in developing a world-class fulfillment network and we offer that network to sellers at highly competitive fees when compared to other options available to sellers. In fact, our research shows other comparable options available to sellers are approximately 50-80% more expensive” than Amazon services, the company said.
The accusations are potentially a significant development in various government inquiries into Amazon’s business practices. The House Judiciary Committee’s antitrust panel hosted a hearing in July during which Chairman David Cicilline (D-R.I.) grilled an Amazon attorney about its practices. As part of that investigation, the committee sent surveys to customers of big tech platforms, asking about the state of competition in digital markets and the adequacy of existing enforcement.
The merchant, who received that survey, says he can’t pursue an antitrust case himself because he agreed to binding arbitration when he began selling products on Amazon. But he hopes the Federal Trade Commission, which is already interviewing merchants, will investigate or that a logistics company that believes it is losing business due to Amazon’s practices will file suit. The merchant, who said he has paid Amazon tens of millions of dollars in fees in recent years, requested anonymity out of fear of losing business.
A spokesman for the House Judiciary’s antitrust subcommittee declined to comment.
The merchant’s letter says Amazon raised logistics fees by 20% over the last four years until they cost as much as 35% more than competing services. The merchant alleges Amazon pushed him to continue using its logistics or risk being suspended from selling on its platform or seeing his products marginalized on the site. He says using Amazon’s service forced him to boost prices by as much as 12% on more than 100 products he’s been selling on Amazon for years.
The allegations directly challenge Amazon’s own testimony that search algorithms determining which products are most prominently displayed are designed to best serve customers, not favor Amazon. The merchant alleges he could offer the same products on Amazon at lower prices and with faster, more reliable delivery if he could handle logistics himself without being penalized for late deliveries. Merchants using Amazon’s logistics services don’t face penalties for delivery mishaps, which is why many choose to use it even when other options are available, the letter states.
More than half of all goods sold on Amazon come from independent merchants who pay Amazon a commission on each sale. Amazon controls more than 70% of all online marketplace sales in the U.S., more than triple its closest online marketplace competitor EBay Inc., according to Digital Commerce 360.
How regulators define Amazon’s market is a key step in any antitrust investigation. Amazon maintains it should be considered in the broadest possible terms, a retailer that attracts about 4% of spending in the U.S. The allegations propose narrowly defining Amazon as the dominant online marketplace with few competitors, which makes its merchant customers more susceptible to its demands.
The letter alleges Amazon uses its marketplace to push its logistics services called Fulfillment by Amazon. Merchants ship their products to Amazon warehouses around the country and pay the online giant fees for storage, packing and delivery. Amazon’s online store, where U.S. shoppers will spend $221 billion this year, according to EMarketer Inc., gives it a big platform from which to build its logistics business. If Amazon can use its marketplace might to build up its logistics business, it wins an advantage over rival services offered by UPS, FedEx and smaller logistics providers.
With assistance from Ben Brody.