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The case against Amazon: Key takeaways from the U.S. House antitrust report on digital markets

Coming in at 451 pages, the U.S. House Judiciary Committee antitrust subcommittee’s report this week on competition in digital markets is a comprehensive summary of the ways in which Apple, Facebook, Google and Amazon capitalize on and allegedly abuse their market power to benefit themselves.

Amazon is mentioned by name 1,866 times in the report, almost twice as many times as Facebook, and second only to Google at 1,964 mentions.

The report dedicates an 83-page section to the Seattle-based e-commerce giant, informed by internal company emails, extensive market research, interviews with third-party retailers, submissions from industry groups, and testimony including the widely followed hearing this summer with Amazon CEO Jeff Bezos and others.

But if you’re looking for the essence of the antitrust case against Amazon, scroll all the way down to this sentence on page 276: “Amazon’s pattern of exploiting sellers, enabled by its market dominance, raises serious competition concerns.”

There’s no shortage of supporting details for that statement, including allegations that Amazon uses third-party seller data to inform the creation of its own products; leverages information gleaned from investments in startups as competitive intelligence; compels merchants to use its fulfillment services through preferential placement in product listings; and many more allegations.

Amazon disputes many of the claims and assumptions in the report, and describes the approach taken by the antitrust subcommittee as fundamentally flawed.

“All large organizations attract the attention of regulators, and we welcome that scrutiny,” the company said in a sharply worded blog post issued shortly after the report was released this week. “But large companies are not dominant by definition, and the presumption that success can only be the result of anti-competitive behavior is simply wrong. And yet, despite overwhelming evidence to the contrary, those fallacies are at the core of regulatory spit-balling on antitrust.”

Amazon also said the results of its internal investigation found no violation of company policy in examples raised by a Wall Street Journal investigation into its use of third-party sales data.

But the ultimate impact of the report is encapsulated by that big-picture takeaway, above. Even if Amazon is able to win its arguments on specific points raised by the report, the company is facing an increasing number of questions about its practices.

Combined with other revelations and investigations into the company’s inner workings, Amazon has a growing public relations challenge on its hands, at least. And depending on the political and regulatory direction of the country, it faces a potential antitrust crisis on the horizon.

Here are some of the key details from the report, and Amazon’s responses.

Relevant market
The definition of the relevant market is the threshold question in antitrust cases. It’s also the central disagreement between Amazon and lawmakers.

The antitrust report focuses on “the U.S. online retail market.” It finds that Amazon has “significant and durable” power in that market.

“Although Amazon is frequently described as controlling about 40% of U.S. online retail sales, this market share is likely understated, and estimates of about 50% or higher are more credible,” the report says, without further explanation of that conclusion.

Amazon contends that the relevant market is all of retail, online and offline. “Simply put, retail is one market,” it says in its post. By that definition, Amazon says it represents 1% of the global market and less than 4% of the U.S. market.

Narrowing the definition to U.S. online retail reflects a “misunderstanding of the size and shape of the retail industry,” the company says. Amazon cites the growing convergence of physical and online retail channels as evidence.

But the House subcommittee’s report puts the nuances of the debate aside with this assessment: “Regardless of the precise boundaries of e-commerce or online marketplaces, the sum of evidence that Subcommittee staff examined demonstrates that Amazon functions as a gatekeeper for ecommerce.”

The report then builds on that point to make the case that Amazon uses its position as gatekeeper to its unfair advantage in a variety of ways.

Third-party sellers
Amazon’s third-party marketplace is the main focus of the report’s findings on the company, and the subject of its most noteworthy allegations against the company.

The report finds that Amazon “has monopoly power over many small- and medium-sized businesses.” It says these businesses largely “do not have a viable alternative to Amazon for reaching online consumers.” The report alleges that Amazon “has engaged in extensive anticompetitive conduct in its treatment of third-party sellers.”

One interesting tidbit from the report: “Publicly, Amazon describes third-party sellers as ‘partners.’ But internal documents show that, behind closed doors, the company refers to them as ‘internal competitors.’ ”

One of the remedies proposed by the subcommittee is “structural separations” of tech giants to “prohibit a dominant intermediary from operating in markets that place the intermediary in competition with the firms dependent on its infrastructure.” That would effectively require Amazon to split its e-commerce marketplace in two, at minimum.

Amazon disputes the very premise of a conflict of interest with third-party sellers. The company’s response focuses on its vested interest in the success of third-party sellers, the benefits its platform provides them, and its symbiotic relationship with them.

Amazon says it has “strong financial incentives to support third-party sellers because we typically make the same or more revenue on third-party sales.”

Past efforts to separate the first- and third-party sales weren’t successful for anyone involved, Amazon says.

“Back in 1999, we took the unprecedented step of welcoming third-party sellers into our store to sell their products,” it says. “We initially tried to have one store for Amazon and one store for third-party sellers. But that approach required customers to effectively walk two sets of aisles—searching for products in two different stores. Unimpressed by the inconvenience, customers simply didn’t go to the third-party store. After that failed experiment, we invited third parties to sell in our store right alongside us.”

Based on the success of third-party sales under the shared store, the company says, there are clear benefits for everyone in the combined approach.