FTC probe into Amazon

The Federal Trade Commission in United States is reportedly investigating Amazon’s pricing practices.

A Reuters report has revealed that the probe will look into allegations of “deceptive pricing” by the e-commerce giant.

Background

Amazon is an American electronic commerce and cloud computing company that was founded on July 5, 1994. It started as an online bookstore and later diversified to sell various commodities like electrical appliances and apparel. Today, it also produces consumer electronics like the Kindle e-Readers, tablets and more. It’s market value had exceeded $500 billion by July 2017.

The FTC is an independent agency within the United States government. Its role is to promote consumer protection and eliminate anticompetitive business practices.

In the 1990s during the IT boom, a similar charge had been levied against Microsoft. The government accused it of constricting competition in the software industry by using its arrangements with other companies and hurting consumers. In 2000, a federal judge ruled that Microsoft violated the country’s antitrust laws and kept ''an oppressive thumb on the scale of competitive fortune.” At the time, it was considered a landmark ruling in favor of consumer rights.

Analysis

Governments are increasingly cracking down on online giants to address antitrust practices. In June 2017, the European Union antitrust regulators slapped Alphabet (Google) with a record $2.7 billion fine. The regulator accused the company of using its dominance in the industry for pushing its own advertising business.

Amazon’s current practices have come under scrutiny due to a review of the company’s proposed merger with Whole Foods. A complaint had been lodged by an advocacy group called Consumer Watchdog, which had analyzed 1,000 products in Amazon’s website. It said that the e-commerce platform allegedly deceives its customers into believing they are availing better deals than the reality of the sale. The group has written to the government noting, “Amazon must not be allowed to expand these deceptive practices to a whole new pool of unsuspecting customers. We call on you to block the proposed purchase of Whole Foods until Amazon formally consents to stop its deceptive, unfair and anti-competitive pricing.”

Amazon has dismissed the group’s findings as “deeply flawed.” In a statement to Reuters, the company stated, “The study issued by Consumer Watchdog is deeply flawed, based on incomplete data and improper assumptions. We validate the reference prices provided by manufacturers, vendors and sellers against actual prices recently found across Amazon and other retailers."

Some US lawmakers like Democratic Senator, Cory Booker have called for a greater scrutiny into Amazon’s merger with Whole Foods.

Assessment

Our assessment is that as online commerce continues to grow, there must be thoughtful scrutiny into practices to ensure marketplaces aren’t monopolized. That said, it will be hard for the US government to establish that Amazon is unlawfully overtaking the market. The company currently has less than 50% of the market-share in online commerce.