The Federal Trade Commission is preparing to file a major antitrust lawsuit against Amazon, alleging that it uses its entrenched power to "convince" online sellers to use its fulfillment services, including warehousing and delivery, according to Bloomberg News.
Under Biden appointee Lina Khan, the agency has taken a hard line with Amazon, bringing several smaller actions against it but the case now in the works would dwarf the previous ones and could have a major effect on the company's business.
Khan has had Amazon in her sights since she served on a House subcommittee that investigated its business practices and she has been quoted as saying that she will not accept any compromises in the antitrust case, insisting instead on a far-reaching overhaul of the massive company.
At the heart of the controversy is Amazon's third-party marketplace – the thousands of merchants both small and large who sell their wares on Amazon's platform.
Originally an online bookseller, Amazon has been transforming itself into more of a flea market than a retailer, with third-party sellers now accounting for more than half of its online sales.
The system sets Amazon up to rake in profits without much risk. Whereas normal merchants have inventory costs, Amazon simply lists items from sellers on its platform, then takes a huge cut of the proceeds – reportedly more than 50% in many cases – when an item sells. Then it makes an additional profit on warehousing costs and delivery charges.
If an item doesn't sell? No problem. Amazon makes money on warehousing and advertising charges while the third-party merchant eats the cost of keeping the merchandise listed on the site and stored in Amazon warehouses.
The procedure is called fulfillment – roughly defined as the process of maintaining inventory, completing the sales transactions and shipping the goods. Amazon has also built a huge advertising business selling ads on its own site to merchants whose goods are listed there.
Blocking the box?
What about merchants who don't sign up for Amazon's fulfillment? The FTC is reportedly preparing to charge that those sellers get third-class treatment – less prominent displays on the Amazon site and banishment from some of the enhancements that can boost sales, including the so-called "Buy Box" section on a product page where goods can be ordered with a single click.
Amazon is expected to argue that inclusion in the Buy Box is decided by an algorithm. The FTC's logical comeback would be that the algorithm needs to be disassembled and inspected for bias.
This is not an unfamiliar allegation. European regulators earlier charged Amazon with antitrust violations and the company agreed to modify its algorithm to treat merchants more fairly. Khan is said to be strongly opposed to settling for such a solution, apparently being determined to make major structural changes in Amazon.
Amazon has already indicated it will argue that Khan is prejudiced, based on her work on the House subcommittee that investigated the company a few years ago, and should recuse herself. She's not like to do that and has previously refused to step aside in similar cases involving other online giants.