US Reporter

The FTC’s Antitrust Allegations and the Battle for Market Fairness

Image Commercially Licensed from: Depositphotos
Image Commercially Licensed from: Depositphotos

On November 2, a legal document was made public, revealing previously concealed details of a significant antitrust lawsuit against Amazon, initiated in September. This lawsuit, brought forth by the Federal Trade Commission (FTC) and the attorneys general from 17 states, doesn’t directly target Amazon’s book business. However, it scrutinizes several of Amazon’s practices that have, in various ways, influenced the publishing industry.

The document highlights that a staggering 98% of Amazon’s sales are funneled through its “Buy Box,” a tool Amazon employs to ensure that sellers, including third-party ones, do not list their products at lower prices on other platforms. Violating this policy can result in sellers being barred from the Buy Box, which can severely diminish their sales.

A secretive algorithm, dubbed Project Nessie, was developed by Amazon to pinpoint products likely to retain price hikes initiated by Amazon across other online stores. When other retailers match Amazon’s increased prices, Project Nessie maintains the elevated price point. This algorithm reportedly boosted Amazon’s profits by $334 million in 2018 alone, with the book category contributing nearly $57 million to this sum. From 2016 to 2018, Project Nessie is said to have generated over $1 billion in additional profit for Amazon.

Amazon has been cautious with Project Nessie, deactivating it during periods of intense scrutiny and reactivating it once the attention subsides. The overarching strategy behind these algorithms is to discourage competitors from engaging in price competition, which Amazon believes would lead to higher prices overall.

Other disclosed details include:

  • In 2020, Amazon sold close to 92 million unique products and had over a billion products listed for sale.
  • Around 70% of Amazon shoppers do not look beyond the first page of search results.
  • Fulfillment By Amazon (FBA) was used by sellers to fulfill over 5.5 billion orders in the United States in 2020.
  • Amazon fulfilled nearly 92% of all orders in 2021, spanning its Marketplace and Retail units.
  • Over 560,000 active sellers were on Amazon’s U.S. Marketplace as of early 2021, offering more than 80% of the unique items for sale on Amazon.
  • Amazon’s “take rate” from seller revenues has increased significantly, partly due to the costs associated with advertising and FBA.

The FTC’s lawsuit accuses Amazon of employing “a set of interlocking anticompetitive and unfair strategies” to unlawfully maintain its monopoly power, hindering competitors and sellers from reducing prices, compromising quality for shoppers, overcharging sellers, stifling innovation, and preventing fair competition. Amazon has refuted all allegations, arguing that consumer interests will be at risk if the government’s case succeeds. The lawsuit has been met with approval from publishers, booksellers, and authors, who have long voiced concerns about Amazon’s business practices.