Amazon Is Facing A Lawsuit From The FTC And 17 States For Allegedly Inflating Online Prices And Overcharging Third-Party Sellers

US regulators and 17 states are suing Amazon over allegations that the e-commerce giant abuses its position in the marketplace. The lawsuit claims that Amazon inflates prices and overcharges sellers both on and off its platform while stifling competition.

Amazon faces a significant legal challenge after a years-long investigation, as a lawsuit was filed on Tuesday in a federal court in its home state of Washington.

The complaint accuses Amazon of engaging in anti-competitive practices by discouraging sellers from offering lower prices for products on non-Amazon sites. This mirrors allegations made in a separate lawsuit filed last year by the state of California.

The lawsuit claims that Amazon buries listings offered at lower prices on other sites while charging sellers high fees, forcing them to raise their prices on the platform and other e-commerce sites to keep their products competitive on Amazon.

In a prepared statement, FTC Chairman Lina Khan stated that the complaint provides a detailed account of how Amazon is exploiting its monopoly power to benefit itself, while also causing an increase in prices and a decline in services for the millions of American families who use its platform and the hundreds of thousands of businesses who depend on Amazon to connect with their customers.

Amazon General Counsel David Zapolsky responded by saying that the FTC is “wrong on the facts and the law” and has departed from its role of protecting consumers and competition.

The lawsuit also accuses Amazon of degrading customer experience by replacing relevant search results with paid advertisements, favoring its brands over other products it knows to be of better quality, and charging heavy fees that cause sellers to pay nearly half of their total revenues to Amazon.

The lawsuit claims that Amazon compels sellers to use its logistics service, Fulfillment by Amazon, to make their products eligible for Amazon Prime, even though many of them would rather use alternative fulfillment services to get orders to customers.

Some estimates show Amazon controls about 40% of the e-commerce market. A majority of the sales on its platform are facilitated by independent sellers consisting of small- and medium-sized businesses and individuals. In return for the access it provides to its platform, Amazon rakes in billions through referral fees and other services like advertising, which makes products sold by sellers more visible on the platform.

The vast majority of third-party merchants also use the company’s fulfillment service to store inventory and ship items to customers. Amazon has been consistently raising fees for those reliant on the program and more recently imposed — and then abandoned — another fee on some who don’t, a move that was blasted by the company’s critics. Last quarter, Amazon reported $32.3 billion in revenue from third-party services.

Consumer advocacy groups applauded the lawsuit, while an industry group said many large retail businesses have policies that mirror Amazon’s.

There has been speculation that the agency would seek a forced breakup of the retail giant, which is also dominant in cloud computing and has a growing presence in other sectors such as groceries and health care. In a briefing with reporters, Khan dodged questions of whether that will happen.

Amazon has long faced allegations of undercutting businesses that sell on its platform by assessing merchant data and creating competing products that it then boosts on its site. In August, the company said it was eliminating some in-house brands that weren’t resonating with customers and would relaunch some items under existing brands like Amazon Basics and Amazon Essentials. Booksellers and authors have also been urging the Department of Justice to investigate what they’ve called Amazon’s “monopoly power over the market for books and ideas.”

The outcome of a court case could be a major win for FTC’s Khan, a critic of Big Tech who rose to fame as a Yale law student in 2017 for her scholarly work “Amazon’s Antitrust Paradox.” In 2021, Amazon sought to have her removed from agency probes against the company on account of her prior criticism.

Under Khan’s leadership, the FTC has made aggressive efforts to curb Big Tech’s influence. However, the agency has recently been unsuccessful in some of its most high-profile cases, including its attempt to prevent Microsoft’s acquisition of video game maker Activision Blizzard and Meta’s purchase of virtual reality startup Within Unlimited. The agency is currently in the midst of a lengthy lawsuit against Meta’s parent company, Facebook, accusing it of monopolistic behavior. Meanwhile, the Justice Department is also taking on Google’s market power in court.

Apart from the lawsuit in California, Amazon is also being sued by the District of Columbia over its treatment of third-party sellers. The federal judge dismissed the case last year, and it is currently under appeal.

The federal complaint against Amazon is just one of several actions that the FTC has taken against the company in recent months. In June, the agency sued Amazon, alleging that the company was using deceptive tactics to enroll consumers into Amazon Prime and making it difficult for them to cancel their subscriptions. Amazon has disputed these claims.

In late May, Amazon agreed to pay a $25 million civil penalty to settle allegations that it violated a child privacy law and misled parents about data deletion practices on its popular voice assistant, Alexa.