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September 26, 2023

Pennsylvania, New Jersey join FTC's antitrust lawsuit against Amazon

The feds and 17 states claim the online retailer inflates prices and stifles competition by using illegal business tactics

An antitrust lawsuit filed Tuesday against Amazon claims the company uses illegal tactics to maintain its monopoly power, inflate consumer prices and stifle businesses that use its platform.

Pennsylvania and New Jersey are among 17 states that joined the Federal Trade Commission in suing the online retailer, whose grip on the marketplace has long escaped the reins of federal regulators. The suit was filed in federal court in Seattle, Washington, where Amazon is based. 

"Our intention is never to stifle innovation, but we have an obligation – one I take very seriously – to protect Pennsylvanians from the consequences of bad business practices, and anticompetitive behavior is a bad business practice that hurts consumers," Pennsylvania Attorney General Michelle Henry said. "Size should not mean free rein to manipulate consumers or the market to maximize profits. There are laws in place for good reason."

The FTC alleges Amazon's anti-competitive behavior – and not its size – holds back the growth of competitors in a way that undermines quality. The lawsuit focuses on Amazon's practices in its online superstore market, which serves shoppers, and the online services marketplaces that third-party sellers use to improve their visibility and ensure reliable revenue.

Businesses that list their products on Amazon and offer discounts on other online marketplaces run the risk of being buried in Amazon's search results, the lawsuit alleges. This enables Amazon to favor promoting its own products when shoppers use the site, often charging more for items of lesser quality. Products from competitors "become effectively invisible," the FTC said.

The suit also alleges that third-party businesses are compelled to use Amazon's costly fulfillment services to gain Prime eligibility for their products, a major enticement for shoppers who pay for speedier deliveries.

By using these strategies, the FTC contends Amazon "extracts enormous monopoly rents from everyone within its reach" and degrades the customer experience. Shoppers often have to filter through paid advertisements and junk ads to find what they're looking for on Amazon, because relevant search results are listed below promoted products.

Hundreds of thousands of third-party sellers who use Amazon are subjected to monthly seller fees for every item they sell and advertising fees that have become increasingly necessary to compete on the platform, the suit claims. Many sellers allegedly end up paying nearly 50% of their total revenues to Amazon, resulting in higher prices for shoppers.

The FTC said the case against Amazon will be a landmark antitrust battle.

"We're bringing this case because Amazon's illegal conduct has stifled competition across a huge swath of the online economy," said John Newman, deputy director of the FTC's bureau of competition. "Amazon is a monopolist that uses its power to hike prices on American shoppers and charge sky-high fees on hundreds of thousands of online sellers. Seldom in the history of U.S. antitrust law has one case had the potential to do so much good for so many people."

Amazon has grown exponentially since Jeff Bezos founded the company as an online bookseller in 1994. Its workforce of 1.4 million people makes it the nation's second-largest private employer. Amazon has aggressively pushed into new business lines by becoming an end-to-end supply chain and logistics operation. It offers cloud and payment services to businesses, produces TV shows and films, manufactures hardware and has its own clothing line.

And in recent years, the company has purchased the likes of Whole Foods, Zappos and home security company Ring, among other businesses.

Amazon said the FTC's lawsuit shows it has "radically departed" from its mission of protecting consumers and competition.

"If the FTC gets its way, the result would be fewer products to choose from, higher prices, slower deliveries for consumers and reduced options for small businesses — the opposite of what antitrust law is designed to do," the company said. "The lawsuit filed by the FTC today is wrong on the facts and the law, and we look forward to making that case in court."

New Jersey's Office of Attorney General did not immediately respond to a request for comment about its decision to join the lawsuit. 

The FTC began investigating Amazon for potential antitrust violations in 2019. 

FTC Chair Lina M. Kahn intensified those efforts when she became FTC chair in 2021, expanding on a legal interpretation she developed while attending Yale Law School. Her academic paper, "Amazon's Antitrust Paradox," described the company as "the titan of twenty-first century commerce" whose monopoly power should be scrutinized beyond its effect on consumer prices. Kahn argued that Amazon's growth into a dominant marketing platform for third-party businesses should be subject to stronger regulation that accounts for the competitive interests of entrepreneurs, too.

Amazon had sought to have Kahn recused from the developing antitrust case due to her critical outlook on the company's structure.

The lawsuit comes against the backdrop of federal efforts to prevent corporate giants from amassing fortune through anti-competitive behavior. The U.S. Department of Justice and 17 states, including New Jersey, are suing Google for allegedly monopolizing digital advertising technologies to the detriment of online publishers and consumers. The company is now on trial for another federal case alleging it unfairly controls the search engine market by paying massive sums to companies like Apple to make Google the default search engine on their products.

The FTC settled smaller lawsuits against Amazon earlier this year, including privacy cases surrounding deceptive data collection from Ring and Amazon's personal assistant, Alexa. Those cases served as warnings that the feds will pursue penalties against large tech companies that unlawfully harvest consumer data as they develop rival AI platforms.