US investigators take a deep dive into Amazon’s behaviour
Small businesses that sell products on Amazon.com are interviewed to see whether company is hurting competition
A team of Federal Trade Commission (FTC) investigators has begun interviewing small businesses that sell products on Amazon.com to determine whether the e-commerce giant is using its market power to hurt competition.
Several attorneys and at least one economist have been conducting interviews that typically last about 90 minutes and cover a range of topics, according to three merchants. All were asked what percentage of revenue their businesses derive from Amazon versus other online marketplaces such as Walmart and EBay, suggesting regulators are sceptical about Amazon’s claims that shoppers and suppliers have real alternatives to the Seattle-based company.
One merchant, Jaivin Karnani, said he was surprised the FTC returned his call the very next day.
The interviews indicate the agency is in the early stages of a sweeping probe to learn how Amazon works, spot practices that break the law and identify markets dominated by the company. The length of the interviews and the manpower devoted to examining Amazon point to a serious inquiry rather than investigators merely responding to complaints and going through the motions, antitrust experts say.
“Early in an investigation, that’s a sign of staff doing a serious job,” said Michael Kades, who spent 20 years at the FTC.
“They’re spending lots of time with witnesses and trying to really understand what they’re saying.”
Amazon has not disclosed an investigation by the FTC, and the agency rarely confirms scrutiny of individual companies. But chair Joe Simons told Bloomberg in August that he welcomed hearing from third-party merchants, who now sell more than half of products on Amazon. Such private conversations are likely to yield far more insights into Amazon’s business than the public grilling of tech executives by congressional committees.
Amazon declined to comment and pointed to a statement consumer business chief Jeff Wilke made in June when asked about reports that the FTC was looking into Amazon.
“We believe that most substantial entities in the economy deserve scrutiny,” he said. “Our job is to build the kind of company that passes that scrutiny with flying colours.”
The probe is part of a broader examination of the control companies such as Amazon, Google and Facebook have over the US economy. The FTC is also investigating Facebook, while the justice department is probing Google. Separately, 50 state attorneys-general have announced an antitrust probe of Google.
A key early task for the FTC is defining Amazon’s competitive universe. The company has long argued that it should be considered a retailer that competes against rivals online and offline, a designation that Amazon says gives it a meagre 4% share of the US retail market. If Amazon’s market is narrowly defined as online shopping, its share rises to almost 40% giving it significant leverage. Narrowing the market by product category, such as electronic books, gives Amazon even more dominance.
The FTC is also seeking to determine the extent of Amazon’s power over its suppliers. All three merchants fielded questions on how much of their revenue comes from Amazon compared with other online platforms. Many sellers get 90% or more of their sales from Amazon, making them vulnerable to the company’s demands and abrupt, unexplained changes in its policy.
FTC investigators examining Amazon likely wanted to move quickly to make sure states or other agencies did not get ahead of them, said Jennifer Rie, an analyst at Bloomberg Intelligence who specialises in antitrust litigation.
The investigators start by learning the inner workings of the company before narrowing their inquiry. “They’re trying to learn as much as they can about the industry from people who aren’t the target of their investigation,” Rie said. “They’re in a background phase.”
The FTC’s interest in Amazon is spreading to sellers via word of mouth. Some merchants fear incurring Amazon’s wrath by co-operating with the agency. One who spoke with an FTC attorney said he was assured the conversation would be confidential unless it led to an official complaint against Amazon or the transcript was subpoenaed by Congress.
“These conversations are going to keep happening,” said Chris McCabe, a former Amazon employee who now runs a business helping Amazon merchants. “I’ve had several people ask me how to go to the FTC. I give them an e-mail, and the FTC is taking their calls.”
Desperation prompted Karnani to contact the agency to report his difficulties selling video games and electronics on the site. Karnani told investigators he lost 10% of his sales after Apple and Amazon reached an agreement in 2018 to limit who could sell Apple products on the site. The change followed years of concern about counterfeit iPhone accessories.
He also described account suspensions in recent months during which Amazon hung on to his inventory and money. “I told them if Amazon suspends you, it’s like a death knell,” said Karnani, who has been selling on the site for two years.
“I told them when Amazon shuts you off, they sit on your money for 90 days and there’s nothing you can do. They were surprised about that.”
Merchants can appeal against suspensions. But even if they prevail, it’s a process of guilty until proven innocent. It can cut off their sales for weeks without warning, potentially putting them out of business.
Amazon in August instituted a new 30-day notice policy regarding suspensions to appease regulators in Germany, who maintained the process was unfair because it was not transparent.
In an e-mailed statement, an Amazon spokesperson said: “We have an appeals process where sellers can explain how they will prevent the violation from happening in the future or let us know if they believe they were compliant.”
If merchants are so reliant on Amazon for sales that they were unwilling to offer better prices on other platforms like Walmart and EBay, that could hurt competition, said Diana Moss, president of the American Antitrust Institute, a nonprofit that advocates for aggressive antitrust enforcement.
“That really is the central question in an inquiry like this, and that’s why Amazon downplays its market power,” she said.