I've never been a fan of Amazon. This week's landmark Federal Trade Commission (FTC) antitrust lawsuit reassures me beyond the shadow of a doubt that I'm standing on solid ground.
This dislike goes back to 1995 when Amazon set out to replace brick and mortar bookstores with its "Earth's biggest online bookstore". I love bookstores, and treasure the precious time spent in stores and libraries, browsing, and discovering great books and authors.
Amazon did kill off some bookstores in those early days. Borders, a .large chain, closed its doors. Fortunately, independent booksellers have been more creative and resilient.
By 1996, Amazon was selling music CDs, toys, electronics, and tools – you name it.
In 2000, Amazon launched a unique business allowing individual companies to sell their products on its website. If other companies advertised Amazon products on their sites, Amazon would fulfill the order and pay a commission. More recently Amazon acquired Whole Foods, and expanded into groceries and to cloud computing. It didn't affect my life or limit my options.
However, for the past several years I've been challenged to buy a bridal or baby shower or wedding gift without going through Amazon. I've tried. Sometimes if the item wasn't on the shelf, I ordered it from the store's online site to avoid Amazon. Strangely enough, I prefer in-person shopping when I choose a gift to send to loved ones or friends.
Then, a few weeks ago, a physical therapist asked my husband to buy an over-the-door exercise strap to continue his shoulder exercises at home. "Just order it from Amazon," he told him. I decided to call a few stores first to see if I could buy it locally. No luck. Ye Gods, how many Iowans have had rotator cuff surgery? Why couldn't Scheels or Walgreen's make money selling these? My sister-in-law ordered it through Amazon.
Storefront bully
So how did we arrive at this point in the history of American commerce? Amazon is both a website for third-party sellers as well as a company with its own products on its Marketplace platform. In fact, about 60% of products on Amazon are sold by other merchants. Sellers pay as much as $1 of every $2 earned to Amazon.
It's hardly a level playing field. Using its market dominance to stifle competition, Amazon retaliates against companies that offer lower prices for their products on a different platform, dropping their products to the bottom of Amazon's search results. It also may begin selling the same product – and offer it for a lower price. Sellers are forced to buy Amazon search ads to reach shoppers, and they're required to use Amazon’s in-house fulfillment services to get the best seller benefits, including the coveted “Prime” badge. It's best to stay on Amazon's good side!
Small wonder why the FTC, on the anniversary of its 1914 launch, issued this statement: “Our complaint lays out how Amazon has used a set of punitive and coercive tactics to unlawfully maintain its monopolies,” said FTC Chair Lina M. Khan. “The complaint sets forth detailed allegations noting how Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them. Today’s lawsuit seeks to hold Amazon to account for these monopolistic practices and restore the lost promise of free and fair competition.”
Attorneys general from 17 states joined the suit: Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, and Wisconsin. Iowa's attorney general, and a majority of Republican-led states, did not.
Amazon's response? In a nutshell, the FTC has a "fundamental misunderstanding of retail".
Gaming the system
Some attribute the meteoric rise of Amazon to its drive to gain information about its customers. Amazon Prime members are the major source of its user data. It's notable that the Consumer Division of the FTC already took action against Amazon earlier this year, requiring it to pay over $30 million in consumer refunds and fines for violation of privacy of its customers.
FTC accused Amazon of enrolling millions of consumers into its paid subscription Amazon Prime without their consent, making it very hard for them to cancel. In fact, the primary purpose of its Prime cancellation process was not to enable subscribers to cancel – but to stop them. In many cases, the option to purchase items without subscribing to Prime was difficult to locate. The button to complete customer transactions didn't clearly state that in choosing that option, they also were agreeing to join Prime for a recurring subscription. One final question they were asked to click on: "No, I don't want fast, free shipping."
Information also is gleaned from what Amazon customers watch and listen to on Prime video and Fire TV. In addition to civil penalties, Amazon was ordered by the FTC and DOJ to delete children's data, geolocation data, and other voice recordings from its virtual assistant device. Apparently, even after a parent tried to delete the information, the FTC said Amazon failed to erase these transcripts.
The FTC has accused Amazon Ring doorbell camera of spying on customers, allowing its employees to access customers' private videos, exposing them to hackers. In fairness, these violations occurred prior to its purchase by Amazon in 2018. But Amazon now is responsible for making these changes and paying the fines.
Amazon's worst sin? Ruining a perfectly good name. Two weeks ago, I was visiting with a relative I hadn't seen in years. We were alone in her kitchen, but we were not alone. I mentioned my daughter's name, and all of a sudden, the virtual assistant responded. "Did you hear that?" my cousin asked "I used to kind of like having one, but I'm not so sure anymore."
I haven't even raised the issue of Amazon's work environment. Yes, I know Iowa has seven warehouses, and employs 1,320+. The pay is relatively good for Iowa, at $14 to $16, plus benefits. But Amazon opposes unions, and discourages organizing efforts at its warehouses. Workers have filed charges of unfair labor practices. They experience a high Injury rate, as they attempt to keep up with productivity demands at warehouses. In fact, we know that Amazon encourages employee turnover to avoid awarding regular raises. Monitor, an app tracking delivery drivers, forces them to drive too fast, and avoid bathroom breaks.
Neutering government's watchdog
This country used to believe that economic competition was vital to our democracy. I've been anticipating FTC Chair Lina Khan's opening salvo against monopoly power. For decades, antitrust law was constrained by the "consumer welfare standard". In other words, the FTC and DOJ only would take action against a company if consumers were hurt by higher prices. This narrow interpretation ignored our government's traditional role of preventing businesses from controlling markets and using market power to raise prices and hurt employees.
Amazon controls an estimated 40% of the online commerce market. This suit, filed in Amazon's home base of Seattle, doesn't call for Amazon's break-up. It's aimed at bringing more competition and a fair marketplace. Much hangs in the balance, if the FTC proves its case that Amazon violates the law. The decision is years into the future, but it's one of the most significant legal challenges to Amazon over the past 30 years.
In the meantime, as Jeff Bezos told Amazon shareholders in 2017. "Customers are 'divinely discontent'." Amazon has purchased One Medical, a chain of primary care practices, the Roomba manufacturer, iRobot, and Metro-Goldwyn Mayer.
Do we Americans care? O, do we only aim to satisfy our lust for stuff, ordered from our Barkaloungers and delivered to our doorsteps? In rural areas, the closure of stores and dearth of shopping options makes Amazon an even more appealing option. My sincere apologies to everyone who loves Amazon. But I have to ask: What is the true cost of this convenience?
There's more at stake than Amazon, or even the efforts underway to rein in Meta and Google. Other antitrust issues may hinge on the success of this suit, including the market power and concentration in America's food system, and explicitly, meat processing. As long as the DOJ and DOJ have been chronically underfunded, and consumers have had cheap food, no other detrimental impacts have been considered since the 1980s. It's been devastating to American farmers and rural communities, and American consumers often aren't well-served, either.
"Capitalism without competition isn't capitalism. It's exploitation," President Biden said in 2021 when he signed an executive order calling for aggressive enforcement of our antitrust laws. I agree. The price of market power in this country should be scrutiny.
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Excellent article and so important for all to grasp…!!