You Paid to Build Amazon's Monopoly Power

A system to coerce sellers and raise prices, built on public funding.

Photo credit: Elvert Barnes

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Last week, the Federal Trade Commission and 17 state attorneys general filed a high-profile and long-promised lawsuit against Amazon, alleging that the corporate giant uses a host of illegal, anti-competitive tactics to maintain its dominance over online retailing.

The whole complaint is worth reading, but at the heart of the case is the allegation that Amazon imposes a “hidden tax” on consumers and sellers that use its platform, raising prices as a way to mask that the “free shipping” promised to Amazon Prime subscribers is not really free at all.

“Amazon illegally raised prices for consumers and took advantage of online sellers in its storefront and they should be held accountable,” said New York Attorney General Letitia James. “Amazon’s monopolistic behavior is hurting consumers, online sellers, competition, and the overall economy.”

The case is broadly similar to a suit filed by the attorney general of California, an earlier one filed by the attorney general of D.C., and two consumer-based complaints filed in federal court in Seattle. The FTC and AGs allege that Amazon uses its monopoly over online retail — its access to customers, and mostly access to its Prime subscribers — to extract fees from other retailers who sell on its platform in a way that ultimately causes prices to be higher than they would otherwise.

For example, per the complaint, Amazon conditions access to Prime subscribers, which sellers really need if they want to sell on Amazon, on, among other things: a general fee for listing; using Amazon’s warehousing and fulfillment services, known as Fulfillment by Amazon (FBA); and advertising, which the complaint shows is very much a necessity for reaching Amazon’s users, as they are significantly more likely to click on advertised products than those that are not.

Crucially, sellers are not allowed to sell their wares for lower elsewhere on the web, including on their own websites, lest they get buried in the Amazon listing, essentially disappearing them from the most important retail site on the internet. For instance, see this recent case of an Amazon seller getting dinged for lowering their cost by five cents on a non-Amazon website.

This all leads to Amazon collecting nearly half of what sellers on its platform make from a sale. And since sellers have to hand over all that to Amazon, without lowering prices on other websites, you ultimately pay more than you would otherwise, not just on Amazon, but across the internet.

I think it’s a very strong complaint, and how it plays out will determine whether America is serious about grappling with the challenges posed by Big Tech, the major monopolists of our age. But this is a newsletter about corporations ripping off states, municipalities, and communities, so I want to focus on the allegation that Amazon ties access to Prime subscribers to the use of FBA, Amazon’s warehousing and fulfillment service.

After all, a hefty chunk of that warehousing and fulfillment network was built at public expense. Overall, Amazon has collected more than $6.3 billion in public subsidies, per Good Jobs First, and while some of that is for its “HQ2” and its data centers, a huge chunk came from states and localities to pay for Amazon to build specific warehouse and distribution centers in specific communities.

I’ve complained about Amazon warehouse giveaways many times for several reasons: They don’t actually influence where Amazon opens new facilities, because Amazon builds where its customers are, so the subsidies are very wasteful; they disadvantage small businesses that don’t have their necessary infrastructure built out at public expense; and they ultimately harm worker and local businesses that see their tax dollars going toward a corporation that undermines their wages and their access to customers, respectively.

Well, now we can add one more: Amazon’s monopoly power is, in part, built on the warehousing and distribution network that’s been created at public cost. Those publicly-subsidized facilities — to the tune of billions of dollars from states and cities all over the country — are the linchpin of a scheme to extract fees from smaller sellers and raise prices.

Again, Amazon conditions access to its Prime customer base on sellers using Fulfillment by Amazon, a way to tie one service — its e-commerce platform — to another — its fulfillment network — and make sellers pay for both whether they want to or not. As the complaint explains, this forces sellers to pay both for Amazon’s fulfillment services and for their own, separate, non-Amazon logistics network, and also harms independent fulfillment companies that may charge less than Amazon, but can’t crack into the Prime customer segment of the market.

All this, at the end of the day, raises prices for everyone, despite Amazon’s reputation for being the cheapest option around.

As the complaint put it, “Without Amazon’s coercion, sellers could more easily offer their products to shoppers via multiple outlets, including other online superstores and marketplaces. They could also use a single fulfillment provider of their choice and pass associated savings on to their customers across all online sales channels, including Amazon. Amazon’s rivals, in turn, could gain scale by attracting new sellers to their marketplaces and offering new selection to shoppers. Amazon fears that world, and so it uses Prime eligibility to foreclose it from coming to pass.”

Unfortunately, a lot of the juiciest details in the complaint were redacted. For example, this tidbit about Amazon studying the intersection of FBA and the sellers who use it would be interesting to read!

Still, the fact remains: A key part of Amazon’s monopoly power — its warehousing network — was built with the aid of billions of public dollars. There are lots of good reasons to close that spigot, but now we have one more.

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— Pat Garofalo