FTC and 17 States File Lawsuit Against Amazon for Alleged Price Inflation and Seller Overcharges

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The Federal Trade Commission (FTC) along with 17 state governments have initiated legal proceedings against Amazon, accusing the online retail giant of exploiting its market dominance to artificially raise prices and impose excessive charges on sellers, thereby suppressing competition.

This significant legal action, filed in a federal court in Washington, the home state of Amazon, follows an extensive investigation into the company’s business practices, marking one of the most substantial legal challenges Amazon has faced in its nearly three-decade existence.

The lawsuit asserts that Amazon’s activities violate both federal and state antitrust laws. The plaintiffs seek a permanent injunction aimed at halting Amazon’s allegedly illegal actions and diminishing its monopolistic grip to reinvigorate market competition.

Amazon is accused of implementing anti-competitive strategies, including discouraging sellers from setting lower prices on other websites. This echoes similar claims made in a previous lawsuit by California.

The suit argues that Amazon conceals product listings available at lower prices on competing sites. Concurrently, it imposes hefty fees on its sellers, compelling them to increase their prices across various platforms, including Amazon, to maintain market competitiveness.

FTC Chairman Lina Khan, in a statement, elaborated on the allegations, highlighting Amazon’s misuse of its monopoly power to its benefit, leading to inflated prices and a decline in service quality for consumers and reliant businesses.

Amazon, headquartered in Seattle, refutes these claims. General Counsel David Zapolsky argues that the FTC’s stance is factually and legally flawed, deviating from its core mission of consumer and competition protection.

Furthermore, the lawsuit also accuses Amazon of deteriorating user experience by prioritizing paid advertisements and its own brands over higher-quality products, and levying excessive fees that compel sellers to relinquish nearly half their revenue to Amazon. The Institute for Local Self-Reliance notes a significant increase in the percentage of revenue sellers pay to Amazon, rising from 19% in 2014 to 35% in 2020.

The suit highlights Amazon’s practice of obligating sellers to utilize its Fulfillment by Amazon service for eligibility in Amazon Prime, despite sellers’ preference for alternative fulfillment methods.

Amazon, controlling an estimated 40% of the e-commerce market, hosts sales predominantly through independent sellers, including small and medium-sized businesses. The company earns billions through referral fees and other services like advertising.

A significant portion of third-party merchants utilize Amazon’s fulfillment service, which has seen increasing fees over time. The company faced criticism for a proposed fee imposition on non-users of this service, which was later retracted. Amazon’s third-quarter revenue from third-party services was reported at $32.3 billion.

Consumer advocacy groups have praised the lawsuit. However, industry groups point out that Amazon’s policies are not unique in large retail operations.

Speculation surrounds the FTC’s potential move to break up Amazon, a major player in various sectors including cloud computing, groceries, and health care. Khan, however, remained non-committal on this possibility during a press briefing.

Amazon has previously been accused of analyzing merchant data to develop competing products and recently announced plans to discontinue some in-house brands while rebranding others. The book industry has also urged an investigation into Amazon’s dominant market position.

A successful lawsuit could significantly boost Khan’s reputation as a Big Tech critic. Amazon had previously attempted to have Khan recused from investigations due to her past critiques.

Under Khan’s leadership, the FTC has been proactive against Big Tech’s influence, though not always successful, as seen in cases involving Microsoft, Meta, and a continuing lawsuit against Facebook’s parent company, Meta. The Justice Department is concurrently challenging Google’s market dominance.

Other legal actions against Amazon include a lawsuit from the District of Columbia over third-party seller treatment, which was initially dismissed but is under appeal.

Recent FTC actions against Amazon include a lawsuit over alleged deceptive practices in Amazon Prime enrollment and a $25 million settlement regarding violations of child privacy laws and misleading data deletion practices with its Alexa voice assistant.

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More about Amazon lawsuit

• Amazon Faces Legal Challenge
• FTC and States Sue Amazon
• Antitrust Allegations Against Amazon
• Amazon’s Monopolistic Practices Under Scrutiny
• Legal Battle Over Amazon’s Market Control
• Amazon Denies FTC’s Accusations
• Impact of Amazon Lawsuit on E-commerce Market