Amazon operates an online marketplace, essentially a digital mall where merchants can sell products. Its website attracts 210 million unique visitors each month in the U.S., mostly shoppers looking for products, making it extremely valuable for anyone looking to sell things online. More than half of all goods sold on Amazon come from independent merchants who pay Amazon a commission on each sale. Amazon controls more than 70% of all online marketplace sales in the U.S., more than triple its closest online marketplace competitor EBay Inc., according to Digital Commerce 360.
How regulators define Amazon’s market is a key step in any antitrust investigation. Amazon maintains it should be considered in the broadest possible terms, a retailer that attracts about 4 percent of spending in the U.S. The allegations propose narrowly defining Amazon as the dominant online marketplace with few competitors, which makes its merchant customers more susceptible to its demands.
The letter alleges Amazon uses its marketplace to push its logistics services called Fulfillment by Amazon. Merchants ship their products to Amazon warehouses around the country and pay the online giant fees for storage, packing and delivery. Amazon has been expanding its logistics operations to handle everything from storing products to shipping them to customers’ homes. Its online store where U.S. shoppers will spend $221 billion this year, according to EMarketer Inc., gives it a big platform from which to build its logistics business. If Amazon can use its marketplace might to build up its logistics business, it wins an advantage over rival services offered by UPS, FedEx and smaller logistics providers.
Amazon, in its emailed statement, said “Fulfillment by Amazon is a service that our sellers love—they tell us FBA saves them time, money and the hassle of packing and shipping boxes so they can instead focus on growing their business, creating new products, and even spending more time with their families. They tell us they choose FBA because it gives them peace of mind knowing that shipping logistics and customer service are taken care of 24/7, year-round.”
The merchant’s complaint is by no means a sure thing. Tying services and products together alone isn’t illegal. For more than a century, disputes involving railroads, hospitals and big technology companies like Microsoft have asked the courts to determine when tying should be deemed anticompetitive, and it’s a subject frequently debated by legal scholars. The merchant’s complaint points to a 1984 Supreme Court ruling that laid out standards for illegal tying, later used in the Kodak case, which the merchant’s letter says pertains to Amazon.
“The essential characteristic of an invalid tying arrangement lies in the seller’s exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms,” the 1984 Supreme Court ruling states.
The letter alleges that Amazon uses “carrots and sticks” to coerce merchants to buy its logistics services. Amazon’s control of the marketplace lets it determine which products are most visible on the site. Those using Fulfillment by Amazon are more likely to have their items appear prominently in search results to win sales. Merchants can sell products on Amazon and handle logistics themselves, but many opt to use Fulfillment by Amazon to increase their visibility on the site, a key factor in selling products.
Amazon denied its search results favored items it delivers, but said products offered by merchants using its logistics services tend to be more prominent in results. It said that’s not because the search algorithm is biased toward Amazon, but because Amazon logistics “generally provides a better and more reliable experience for our customers than fulfillment through other means,” Amazon general counsel David Zapolsky said in a July letter to the House antitrust panel.
The merchant’s letter disputes Amazon’s testimony. Of more than 120,000 Amazon orders handled by Fulfillment by Amazon from Aug. 25 to Oct. 25, fewer than 25% arrived within two days; more than half arrived in about three days and more than 15% arrived in four days, according to the merchant’s analysis. Despite the slow delivery times, Amazon’s logistics fees were 35% higher than other rapid shipping options offered by UPS and the U.S. Postal Service, according to the merchant.
The sticks Amazon uses to coerce merchants to use its logistics services are strict penalties, including getting kicked off the platform, for merchants who handle their own logistics. Merchants using Amazon logistics services aren’t penalized when customer orders arrive late, even though they frequently do, since that’s Amazon’s responsibility. Those who handle their own logistics face stiff penalties for even minor delivery mishaps, including being suspended from selling on the platform, according to the merchant.