Joe Biden’s competition tsar has accused Amazon of using “punitive and coercive tactics” to lock in businesses and squeeze money from Prime subscribers.
Lina Khan, the 34-year-old Democratic chair of the Federal Trade Commission (FTC), has sued Amazon to block its “unlawful” online marketplace monopoly.
The US competition watchdog and 17 states sued the company on Tuesday, claiming it had used its dominance to keep prices high and forced sellers to use its own delivery services.
The FTC claimed Amazon had taken to providing biased recommendations and search results that favour its own products, even if they are lower quality than those of rivals.
It claimed Amazon has gradually degraded the customer experience of its online store, littering the website with products that sellers have paid to boost even if they are of inferior quality.
The regulator added sellers were routinely “punished” if they offered products for less on rival websites, as Amazon would reduce their visibility on its store.
Sellers also need to secure eligibility for “Prime” delivery discounts by using Amazon’s own delivery services. The FTC claimed the $1.3 trillion company “extracts enormous monopoly rents from everyone within its reach”.
Third-party businesses selling on Amazon are in some cases handing over as much as 50pc of their total revenues to the tech giant, the FTC claimed.
Ms Khan said Amazon had made its service worse for the “tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon”.
In a legal filing, the FTC said: “Amazon has violated the law not by being big, but by how it uses its scale and scope to stifle competition.”
Amazon rejected the allegations. David Zapolsky, Amazon’s general counsel, said: “Today’s suit makes clear the FTC’s focus has radically departed from its mission of protecting consumers and competition.
“If the FTC gets its way, the result would be fewer products to choose from, higher prices, slower deliveries for consumers, and reduced options for small businesses.”
Under Ms Khan, a legal prodigy who has rapidly gained influence with Democratic policymakers, the FTC has launched a crusade against technology giants.
She had long argued that tech companies have grown too powerful: Ms Khan rose to prominence as a student in 2017 after publishing a paper called “Amazon’s Antitrust Paradox”. The paper argued Amazon should be broken up, even if it had brought down prices for consumers.
The FTC’s legal challenge stopped short of demanding Amazon be split up. It called for a permanent injunction to block a number of selling practices the regulator claimed are unlawful.
The watchdog has already sued Amazon over claims it makes it too hard to cancel Prime membership, which offers cheaper and free deliveries. Amazon is disputing the claims.
Over 200m people around the world subscribe to Prime, which costs £8.99 per month in the UK.
The latest legal challenge is just one of a flurry of competition cases Ms Khan has launched against Big Tech since being sworn in as FTC chairman in 2021, although some have been thrown out.
An attempt to block Microsoft’s takeover of Call of Duty-maker Activision in a $69bn deal was quashed by a court, although the FTC is appealing the decision.
A bid to halt a takeover of a tiny virtual reality start-up by Facebook-owner Meta also failed.
In a separate case brought by the Biden Justice Department, Google is fighting a lawsuit over its dominance in online search. The case is ongoing.
In the UK, the Competition and Markets Authority (CMA) has also been investigating Amazon’s digital marketplace over concerns about its dominance.
The tech giant has proposed a number of mitigations to the regulator’s concerns, including not using data from rival sellers to give it an advantage. The UK regulator is now consulting on the proposals.