The Washington Post-What just happened to Amazon The FTCs antitrust lawsuit explained

2023-09-26T12:05:33.992Z

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A long anticipated government antitrust lawsuit against Amazon was filed on Tuesday.

Here’s what you need to know about what the U.S. government claims Amazon did wrong, the company’s response and how this lawsuit might affect you.

Also read The Washington Post’s news article about the Amazon lawsuit, which will be updated throughout the day.

Why is the government suing Amazon?

At its core, the U.S. Federal Trade Commission v. Amazon is an alternative narrative about one of the country's most successful companies.

The image of Amazon in many people's minds is a company that gives Americans a wide selection of products at low prices that we can buy from our sofas and have delivered quickly to our doors.

In the government’s view, Amazon is an illegal monopoly that stifles technology innovation, makes shopping worse and drives up prices for Americans to gobble more power for itself.

In other words, the government now says that Amazon cheated its way into becoming a force in Americans’ homes and their hearts.

(Amazon founder and former CEO Jeff Bezos owns The Washington Post. Interim CEO Patty Stonesifer sits on Amazon’s board.)

The federal government and 17 states jointly sued Amazon. They didn’t immediately detail how they might want a court to fix Amazon’s alleged illegal actions.

Potential legal fixes, such as breaking a company into parts or forcing changes in how it does business, sometimes are made after the first legal filing in antitrust cases like this one.

You can read the lawsuit for yourself here.

What does Amazon say?

Amazon said that the government has a warped interpretation of America’s laws and that its lawsuit threatens to hurt Americans, the economy and small businesses.

Amazon top lawyer wrote in a statement posted online that the government is “wrong on the facts and the law.”

The lawyer, David Zapolsky, said that the lawsuit is improperly challenging Amazon’s actions that have “helped to spur competition and innovation across the retail industry, and have produced greater selection, lower prices, and faster delivery speeds for Amazon customers and greater opportunity for the many businesses that sell in Amazon’s store.”

Amazon’s flea market is the heart of this lawsuit

If you want to understand the government's allegations, you need to know some nerdy details about how Amazon works.

Amazon is partly a conventional online store like Target.com and partly an internet flea market similar to the old school eBay.

Like any conventional retailer, Amazon buys blenders, sneakers and other products from the manufacturers and resells them to shoppers at a markup.

The flea market part of Amazon is comprised of millions of businesses, some of them in China, that sell their own products on Amazon’s website and app.

Most shoppers don’t notice or care whether the blender they’re buying from Amazon came from the conventional store part of Amazon or from the flea market part that Amazon calls its marketplace. Buying from either part of Amazon looks more or less the same to shoppers.

But Amazon’s marketplace is at the heart of the government’s claims that Amazon broke the law.

Examples of the government’s monopoly allegations

Essentially, the U.S. government is alleging that Amazon uses an interconnected set of illegal actions to strong arm marketplace sellers in ways that drive up prices for consumers no matter where they shop.

For example, the lawsuit said if companies that sell products on Amazon want to charge lower prices on their websites or at other retail stores, the company makes it nearly impossible for shoppers to find or buy their products on Amazon.

The company didn’t immediately respond to details in the lawsuit. But it has said before that companies are free to set their own prices on Amazon.

The government said as a result, other stores can’t compete on price and Americans pay higher prices than they would otherwise.

The lawsuit also says that Amazon coerces merchants to pay for add-on services such as storing their products in Amazon warehouses, shipping their orders using Amazon delivery services and buying advertisements promoting their products on Amazon’s website and app.

Amazon says all those add-on services are optional. But the government lawsuit said they’re optional in name only.

Amazon charges marketplace businesses a sales commission of something like 15 percent of the total price of a product. (Amazon’s commission varies by the type of product.) But because of various other fees that the government says aren’t really optional, the company typically keeps for itself more than 50 percent of the total product price, according to estimates by e-commerce research firm Marketplace Pulse.

“Amazon’s ability to profitably hike fees while maintaining its iron grip over sellers is further evidence of its monopoly power,” the lawsuit said.

Many of the allegations in Tuesday’s lawsuit repeat years of similar complaints from some Amazon product sellers, many Amazon critics and prior antitrust lawsuits against the company.

There may be more detailed allegations that are hidden from the public. Some of Amazon’s alleged illegal business tactics were redacted in the publicly available version of Tuesday’s lawsuit.

What could this mean for Amazon shoppers?

For the foreseeable future, nothing will significantly change with Amazon.

A lawsuit like this will probably take years to resolve, assuming the case isn't dropped, dismissed by a judge or settled before it goes to trial.

It’s possible a court could force Amazon to change how shopping works on the site in ways that are hard to predict right now, or break up the company.

It's also possible that Amazon could win an antitrust case and still be worse off, or lose an antitrust lawsuit and still win.

No matter the outcome of this legal case or similar ones, global governments' doubts about Big Tech are changing how the companies operate or forcing them to spend money and attention on fighting new laws and regulations.

In one small example, Amazon last week dropped plans to increase one type of fee for its marketplace product sellers. Some company watchers believed Amazon changed its mind to avoid more regulatory attention.

It’s also possible that even if Amazon is forced by the government to change how it does business, it might not hurt the company much.

In a settlement last year of antitrust allegations in the European Union, Amazon agreed to a few adjustments to its shopping site and corporate behavior. So far, it’s not clear that those changes have hurt Amazon’s business in Europe or made online shopping in the region more competitive.

The big idea behind Big Tech antitrust lawsuits

There's a belief among some economists, academics and elected officials that Americans are worse off because a few huge corporations dominate industries such as health insurance, airlines, banking, food production and technology.

Those believers — who include President Biden but also some Republicans — say that in recent decades, American courts and regulators stood by as mega corporations steamrolled their competition and hoarded power in ways that hurt the economy, squashed new ideas, raised consumer prices and widened the income gap between rich and poor.

Viewing unrestrained corporate power as a foundation of America's problems is the intellectual and legal principle behind this Amazon lawsuit. It's also behind similar federal lawsuits accusing Google and Meta of abusing their monopoly power.

In this view, large and dominant companies including Amazon, Google and Meta can be bad for America and Americans, even if those companies' products are beloved, free or cheaper than alternatives.

Critics say this approach is a perversion of America’s laws and a government overreach that will hurt Americans and has a shoddy track record in legal cases.