Unveiling Amazon’s Anticompetitive Practices: A Detailed Examination of the Unredacted Antitrust Lawsuit
In a groundbreaking legal development, previously redacted portions of an antitrust lawsuit against Amazon were unveiled in November 2023, shedding light on the company’s initiatives and ambitions. This lawsuit, filed by the Federal Trade Commission (FTC) and attorneys general from 17 states, targets Amazon’s practices that have impacted various aspects of the publishing industry. This article delves into the revelations contained in the unredacted filing, providing a comprehensive analysis of Amazon’s strategies and their implications.
The Dominance of Amazon’s Buy Box:
Amazon’s “buy box” is a prominent feature that captures 98% of sales on its platform. Third-party sellers are granted access to the buy box only if they commit to maintaining prices on Amazon lower than on other sites. Violation of this rule can result in denied access to the buy box, leading to a significant decline in sales.
Unveiling Project Nessie:
Project Nessie is a secretive algorithm developed by Amazon to manipulate prices. It identifies products whose prices are likely to increase on other online stores when Amazon raises its own prices. The algorithm then increases prices for those products, and once other stores follow suit, it maintains the higher prices. Amazon considers Project Nessie a substantial success, generating over $1 billion in additional profit from 2016 to 2018. To avoid negative publicity, Amazon strategically deactivates Project Nessie during periods of heightened scrutiny and reactivates it when less attention is paid.
Deterrence of Price Competition:
Amazon employs an algorithm to discourage other online stores from offering lower prices. This algorithm uses a “game theory approach,” mirroring competitors’ price changes to prevent them from gaining an advantage. The goal is to maintain high prices and deter rivals from competing on price, potentially benefiting consumers.
Amazon’s Market Dominance:
The lawsuit highlights Amazon’s dominance in the online retail market. In 2020, Amazon sold nearly 92 million unique products across various categories to U.S. consumers. The platform offers over a billion products, with 70% of shoppers not venturing beyond the first search results page.
Fulfillment by Amazon (FBA):
The unredacted portions of the lawsuit shed light on Amazon’s Fulfillment by Amazon (FBA) program. In 2020, numerous sellers utilized FBA to fulfill over 5.5 billion orders in the U.S. In 2021, Amazon fulfilled nearly 92% of all orders made on its platform, including Marketplace and Retail business units.
Controlling Amazon Marketplace:
The lawsuit reveals Amazon’s control over its Marketplace platform. As of the first quarter of 2021, Amazon’s U.S. Marketplace hosted over 560,000 active sellers. In 2020, third-party sellers offered more than 80% of the unique items available for sale on Amazon. Amazon’s requirements for sellers to pay for search placements through advertising and FBA shipping costs have increased its take rate. The average take rate for sellers using FBA rose from 27.6% in 2014 to an estimated 39.5% in 2018. Sellers have expressed concerns about slim margins and higher consumer prices due to Amazon’s fees. Amazon employs surveillance to detect sellers offering lower prices on other websites.
The Role of Prime:
The lawsuit highlights the importance of Amazon’s Prime subscription service. Amazon has transformed Prime from a shipping program to a subscription service. Amazon considers Prime to be prohibitively expensive for competitors to replicate. The company believes that the Prime membership fee drives engagement and sales. Amazon projects that by 2024, Prime enrollment will surpass paid television and nearly match home internet access.
Advantages over Physical Stores:
The lawsuit acknowledges Amazon’s competitive advantages over physical stores. Amazon emphasizes the convenience of its online marketplace, showcasing a wider selection of products compared to physical stores. Internal documents recognize personalization as a key competitive advantage, utilizing customer data and targeted recommendations. Amazon attributes over a billion dollars in sales to its personalization systems in the first nine months of 2021.
Conclusion:
The unredacted portions of the antitrust lawsuit against Amazon provide valuable insights into the company’s strategies to maintain its dominance in online retail. The revelations about Project Nessie, the algorithm to deter price competition, and the control over Amazon Marketplace raise concerns about the company’s impact on consumers, sellers, and the overall market landscape. As the legal battle continues, the outcome will have significant implications for the future of e-commerce and competition in the digital economy.
