Premium Shipping and Anti-discounting Policies Central to FTC’s Amazon Lawsuit

WASHINGTON, October 20, 2023 –While the Federal Trade Commission may have a hard time proving that Amazon has monopolistic power, some of its policies could be construed as anticompetitive.

That was the message antitrust experts delivered on Tuesday at an Information, Technology and Innovation Foundation panel on the FTC’s lawsuit against the online retailer in U.S. District Court in Seattle, Washington.

The agency’s complaint argues that the Amazon exerts unlawful monopoly power by forcing third party sellers to fulfill orders on Amazon and by preventing third parties selling products on Amazon from charging lower prices on other platforms.

The first policy coerces third-parties to fulfill orders on Amazon in order to get the e-commerce giant’s premium two-day shipping, the FTC has argued.

The second policy, dubbed anti-discounting, can be used as a form of price control despite having pro-competitive benefits like discouraging free riding and encouraging investment, said Kathleen Bradish, president of the Antitrust Institute.

Because Amazon requires merchants to maintain a price point on its marketplace, it can create barriers to entry when other marketplaces cannot attract merchants to sell their products at a lower price, she said.

A debate about anti-discounting

Steve Salop, professor of antitrust law at Georgetown University, added that “what Amazon does is it has algorithms that scrape all the relevant websites and if it discovers that the merchant’s product is being sold at a lower price anywhere else it contacts the merchant and says [that it has to] lower the price to [Amazon] or raise the price to” the consumer.

Herb Hovenkamp, an antitrust professor at the University of Pennsylvania, said that anti-discounting policies “only work on a product-by-product basis.”

When you look at each product Amazon sells, there may not be anticompetitive power impacting each product, said Hovenkamp.

Amazon sells almost 12 million products on their e-commerce site and its individual market shares for all those products varies, he said. That means it is hard to argue that Amazon holds a monopoly for every product it  sells.

Hovenkamp noted that while Amazon may succeed in areas such as streaming – which has no offline alternative – it struggles in “markets like try on clothing, tires, groceries…. Product by product, the question of how much competition Amazon faces from offline sellers varies immensely,” he said.

Bilal Sayyed, senior competition counsel at TechFreedom, a non-profit tech policy group, echoed this point: Anti-discounting policies can have anti-competitive consequences, but that they can also have pro-competitive benefits.

Sellers may not switch to other fulfillment companies because it does not make sense to do so given the “scale that Amazon has,” Bradish said, even if they prefer to use another e-commerce platform. But she acknowledged that having witnesses testify that those policies have impacted their behavior could favor the FTC’s point.

The role of Amazon’s fulfilment services

Amazon’s fulfillment services apply to several products it sells. But the FTC will need to demonstrate that monopoly prices are a result of those fulfillment services, said Hovenkamp.

“The hard part is going to be for the FTC to convince the fact finder that that’s a grouping of sales that’s capable of sustaining a monopoly markup,” he added. “It may be able to do that.”

While a large-scale operation like Amazon might have a cost advantage with fulfillment services, monopoly power will have to be determined by a finding of fact, he said.

By contrast, Sayyed argued that there is a clear pro-competitive justification for sellers using Amazon’s fulfillment services. That comes from the company’s reputation for quickly delivering goods to consumers.

“This idea that parties should be able to take advantage of the platform and the Amazon brand, but then [sell] their merchandise [through] a third party that may or may not meet the same fulfillment and delivery standards, really strikes me as very dangerous ground for the agency” to argue, said Sayyed.