The European Union's top antitrust official, Margrethe Vestager, filed charges against Amazon on November 10 accusing the tech giant of abusing its dominant position to gain an unfair advantage over competitors within its online marketplace. These charges come after a two-year investigation into Amazon's operations, and reflect an ongoing shift in the handling of antitrust cases in relation to the tech industry. As we described in a previous blog post, tech companies such as Google, Facebook, and Amazon have become the new monopolies of the 21st century, and antitrust regulation has been slow to adapt to these new types of monopolies. The charges against Amazon signal that regulators are beginning to adapt to these new circumstances, and may foreshadow further regulation of anti-competitive practices in the future.
The investigation conducted by the EU's executive Commission focused on specific business practices within Amazon. Vestager has maintained that Amazon's size and success were not factors in the investigation, but it is clear that the sheer size of the company contributed to drawing the attention of regulators. Specifically, the Commission analyzed Amazon's use of non-public sales data from its platform, which investigators found was being funneled back into the platform's algorithms which help to determine new products and their prices. This means that Amazon faced none of the risk that is traditionally associated with bringing a new product to market, and instead relied on the experiences of third-party sellers to provide them with this data. Once the data was gathered, Amazon could reap all of the rewards without assuming any of the risk, and could in turn stifle the ability of third-party sellers to compete on the platform.
While some have argued that these practices occur outside of online retail platforms as well, the dominant market position that Amazon has assumed makes these practices particularly anti-competition in this scenario. With Amazon accounting for nearly 15% of global online retail sales, the company's market position and global reach means that its actions can significantly impact the market, and smaller sellers often have no choice but to rely on Amazon's platform in order to compete in the online retail space. With the COVID-19 pandemic pushing more consumers to online shopping, the ability for independent retailers to compete on the platform has become even more important. The Commission found that Amazon's use of internal data from third-party retailer sales was used in a way that made it difficult for these retailers to succeed on the platform.
The Commission's conclusion highlights an area of growing concern for regulators, and that is Amazon's dual-role as both a platform service provider and a participant on that same platform. This is something that other antitrust experts have also pointed to as a potential issue, as it gives Amazon the ability to privilege itself in an ecosystem where competition is necessary to avoid a monopoly of the online retail space. Indeed, Lina Khan - former counsel to the U.S. House Judiciary Committee's Subcommittee on Antitrust, Commercial, and Administrative Law - appears to be strikingly prescient in her 2017 article in which she theorized that Amazon's "dual role also enables a platform to exploit information collected on companies using its services to undermine them as competitors." This is of course exactly what Amazon is accused of doing right now. The allegations also seem to justify Khan's concern that Amazon's extensive financial backing allows it to absorb losses in pursuit of achieving dominant market position while driving out smaller competitors. Unlike third-party retailers, Amazon has massive financial resources and a board that is willing to accept losses in order to dominate the market, another factor which contributes to these tactics being labelled "anti-competitive".
A second investigation currently being conducted by the EU executive Commission is looking at how Amazon selects products for inclusion in its "buy box" promotions, another example of how the tech giant's dual-role may be used to advantage its own products to the detriment of competition on the platform. Some have suggested that the remedy to this issue might be to separate the online marketplace and retail arms of Amazon into distinct and independent entities, though this has not been proposed in the EU Commission's current investigation. Instead, the Commission could order Amazon to pay a hefty fine of up to 10% of its global annual revenue, which would amount to ~$37 billion USD based on the company's 2020 projections.
While the potential of a $37 billion fine is a serious consequence for Amazon, this case may have even more significant long-term effects. The investigations that Amazon is now facing are a clear indication that the problems of tech monopoly are being taken seriously by regulators. It is likely that platform providers in the future will face greater scrutiny than Amazon had previously been subjected to. Platform providers will have to take steps to ensure that their own participation on a platform they control is not privileged by their role as the provider. Internal data generated by platforms will also have to be used more cautiously in the future by platforms of all size, possibly reshaping the futures of numerous companies for years to come.
