Amazon accused of anti-competitive practices by US subcommittee

Amazon accused of anti-competitive practices by US subcommittee

Amazon has been accused of anti-competitive practices in a scathing report into US tech giants by Democratic politicians. The online retailer has rebutted the claims, saying "the presumption that success can only be the result of anti-competitive behavior is simply wrong".

The 450-page report written by Democrats on the House Judiciary Subcommittee on Antitrust, released on 7th October, comes after a 16-month probe into whether Amazon, Facebook, Google and Apple abuse their power. Republicans on the committee have refused to sign the report and are releasing a series of their own instead.

The report, which calls for US antitrust rules to be overhauled, said the companies were running marketplaces they also competed in, allowing them to “write one set of rules for others, while they play by another”.

Book publishers told the committee Amazon uses retaliation “to coerce publishers to accept contractual terms that impose substantial penalties for promoting competition” with its rivals. One publisher claimed the platform’s retaliatory conduct shows “Amazon’s ability and willingness to leverage its market power to prevent publishers from working effectively with rival e-book retailers and, thereby, maintain and enhance its dominance in e-book distribution.”

Retaliation included Amazon removing the “buy” and “pre-order” button from products, or showing titles as out of stock or with delayed shipping times, it was claimed.

The report states: “According to credible reports, Amazon used these tactics in its public battle with Hachette Book Group in 2014 over e-book pricing, and has used them or threatened to use them in more recent negotiations. Publishers, authors, and booksellers have 'significant fear' because of Amazon’s dominance.”

One third-party bookseller told the subcommittee Amazon delisted 99% of his business’s inventory in September 2019 and only returned a small fraction of his inventory, continuing to charge him storage fees but blocking him from selling products on the site. Amazon c.e.o. Jeff Bezos told the committee this was not a “systematic approach” but the report concludes poor treatment was not uncommon.

Third-parties are seen as “source of profit, rather than partners”, with the firm taking an extra 11% cut over the past five years. The platform now takes an average of 30% of each sale compared to 19% in 2015, it said.

According to the report, Amazon hosts 2.3 million third-party sellers from around the globe, with around 37% of them, or more than 850,000, relying on the site as their sole income source.

However, the report claims Amazon uses sales and product data from its marketplace to identify and replicate popular, profitable items offered by third-party sellers. It will then create a competing product, or identify and source the product directly from the manufacturer “to free ride off the seller’s efforts, and then cut that seller out of the equation”, it is claimed. Amazon says that it has no incentive to abuse sellers’ trust because third-party sales make up nearly 60% of its sales, a claim the committee cast doubt on.

However, many sellers told the subcommittee they could not use alternative marketplaces, “regardless of how much Amazon may increase their costs of doing business or how badly they are treated”, simply because of the company's size.

The firm's acquisition strategy is focused on purchasing competitors or firms in adjacent markets and gaining access to their data, the report states. It notes that, with all the online and offline consumer behaviour Amazon collects data on, its acquisitions of firms such as Audible and Good Reads “set in motion a self-reinforcing cycle, creating an ever-widening gap between the platform and its competitors”.

One ex-employee told the investigation: “Amazon is first and foremost a data company, they just happen to use it to sell stuff.”

The committee also estimates Amazon has around a 50% or higher share of US e-commerce. “The platform also has significant market power over the entire book industry, including sales, distribution, and publishing,” it says. “In the US market, Amazon accounts for over half of all print book sales and over 80% of e-book sales.”

In a lengthy blogpost responding to the report, Amazon warned: “Misguided interventions in the free market would kill off independent retailers and punish consumers by forcing small businesses out of popular online stores, raising prices, and reducing consumer choice and convenience.”

The company said: “All large organizations attract the attention of regulators, and we welcome that scrutiny. But large companies are not dominant by definition, and the presumption that success can only be the result of anti-competitive behavior is simply wrong. And yet, despite overwhelming evidence to the contrary, those fallacies are at the core of regulatory spit-balling on antitrust. The flawed thinking would have the primary effect of forcing millions of independent retailers out of online stores, thereby depriving these small businesses of one of the fastest and most profitable ways available to reach customers. For consumers, the result would be less choice and higher prices. Far from enhancing competition, these uninformed notions would instead reduce it.”

It went on: “These flawed regulatory ideas rely on the false narrative that Amazon’s interests are not aligned with those of the thousands of small and medium-sized businesses thriving as sellers in our store. The opposite is true: Amazon and sellers complement each other, and together we create a better customer experience than either could create alone.

“Small and medium-sized third-party businesses account for approximately 60% of all physical product sales on Amazon, and those sales are growing faster than Amazon’s own retail sales. And—in addition to great value and low prices for customers—we also have strong financial incentives to support third-party sellers because we typically make the same or more revenue on third-party sales. Clearly, when it comes to Amazon and third-party sellers in our store, it’s not zero-sum. Amazon and third-party sellers have a mutually beneficial relationship, and our interests are well aligned.”

The committee said the tech giants all serve as gatekeepers over key distribution channels, using their position to maintain market power and cut off threats. It said: “They not only wield tremendous power, but they also abuse it by charging exorbitant fees, imposing oppressive contract terms, and extracting valuable data from the people and businesses that rely on them.”

It added: “These firms have abused their role as intermediaries to further entrench and expand their dominance. Whether through self-preferencing, predatory pricing, or exclusionary conduct, the dominant platforms have exploited their power in order to become even more dominant.”

The report concludes: “To put it simply, companies that once were scrappy, underdog startups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.

“Although these firms have delivered clear benefits to society, the dominance of Amazon, Apple, Facebook, and Google has come at a price. These firms typically run the marketplace while also competing in it—a position that enables them to write one set of rules for others, while they play by another, or to engage in a form of their own private quasi regulation that is unaccountable to anyone but themselves."