This week, an updated complaint filed by the Federal Trade Commission has raised additional questions about the merits of the FTC’s case regarding alleged anticompetitive practices by Amazon in their online storefront.
As has previously been stated by PPI’s Director of Competition Policy, Diana Moss, the FTC has a heavy lift in defending the markets it defines in the complaint — especially the “online superstore” market. The unorthodox approach of defining a market around a company’s large market share will garner scrutiny, potentially casting a shadow on the claim that consumers have been harmed.
This concern is especially pertinent in the face of a distinct lack of public support for any remedy, should the FTC prevail, around breaking up services offered by Amazon. For example, polling by PPI finds that 70% of working-class Americans do not support the government’s interference with Prime delivery services. The same poll found that only 17% of those asked supported breaking up the service.
The updated complaint reinforces a misunderstanding of the way in which today’s users buy and sell on Amazon. In defining the consumer-facing relevant market as online superstores, the FTC essentially concludes that e-commerce platforms specializing in certain types of products are not good substitutes.
This assumes that consumers use Amazon as a one-stop shop for all types of goods sold on the Amazon platform, a claim that is unproven in the complaint. Moreover, it ignores basic questions around how consumers consider product pricing and quality. Instead, the FTC assumes that because a product is available on the Amazon Marketplace, it is the optimal choice for consumers.
Take, for example, the complaint’s assessment of how Amazon offers the “Prime” designation to third-party sellers. The Fulfillment By Amazon (FBA) program is the primary means for sellers to obtain a Prime label, but requires them to distribute through Amazon warehouses to ensure that the standards of shipping are consistent with Amazon’s branding.
Under the FBA system, consumers benefit from knowing the speed and quality of service they can expect upon making a purchase. The other option for sellers to be included in the benefits of Prime labeling is Seller Fulfilled Prime (SFP), which closed enrollment in 2018 but may be reopening this year. SFP provides an alternative to Amazon’s FBA service, allowing third-party sellers to be eligible for the Prime designation on their listing without giving their inventory to Amazon warehouses.
However, Seller Fulfilled Prime became an issue of quality for Amazon’s customers, who were receiving packages far outside the two-day shipping window which is generally expected with Prime services. Amazon has previously stated that “fewer than 16% of SFP orders in the U.S. met the Prime Two-Day delivery promise customers expect,” meaning that in many cases the program was not beneficial to consumers who had to wait longer to receive orders despite the indication that the purchase was eligible for Prime delivery. When fulfilled through the FBA program, Prime delivery indicates that purchases will be shipped within two days.
The FTC attempts to equate the two programs, arguing that the discontinuation of enrollment served as a tool for Amazon to limit competition with third parties. Citing in the complaint that sellers enrolled in SFP met their promised “delivery estimate” requirement more than 95% of the time in 2018, they argue that the service provided was thus consistent with sellers utilizing the FBA program. However, the “delivery estimate” is an indication of the reliability with which a seller ships products, rather than the speed. While SFP sellers may reliably ship products, they do so at a much slower speed than is expected through FBA, which reliably ships products quickly.
This important distinction highlights the fact that the Prime label comes with an expectation of quality, and by differentiating its offerings, Amazon consumers are less likely to encounter listings that misrepresent the products and services they are providing. With an estimated 2.3 million active sellers on the Amazon Marketplace, consumers benefit from assurances that the quality of their purchase will be as expected. Competition on “quality” is a well-known concept and an important non-price dimension of competition. As the FTC examines concentration in the digital economy, it is critical that antitrust considers all dimensions of competition and target behaviors that truly harm consumers.
