On May 25, Washington D.C.’s Attorney General, Karl A. Racine, announced he filed a lawsuit against the tech giant Amazon for allegedly violating the district’s antitrust laws. In the press release following the filing, Racine claimed Amazon’s practices were “harming competition, stifling innovation, and illegally tilting the playing field in its favor.” Unfortunately for consumers and small businesses, Racine’s lawsuit misses the substantial benefits large companies, like Amazon, have provided.
Racine’s antitrust suit against Amazon was initiated because he sought to “put an end to Amazon’s illegal control of prices across the online retail market.” The lawsuit is based upon a misguided but widespread belief that the existence of big business is harmful to consumers and a competitive marketplace. This mentality risks inflicting unnecessary harm to both consumers and small businesses, the group Racine seeks to protect.
As punishment for Amazon’s anti-competitive behaviors, Racine asked the Court to order structural relief that would “eliminate the ability of Amazon to continue to reap benefits from its pattern of competitive harm.” Racine also asked for the appointment of a “corporate monitor to ensure implementation of all structural or practice remedies ordered by the Court, as well as to ensure that Amazon does not engage in further anti-competitive conduct.”
Racine’s lawsuit is centered around Amazon’s Fair Pricing Policy (FPP) for third-party sellers. In the lawsuit, Racine outlines Amazon routinely penalized sellers that offered a “product for a lower price or on better terms on a competing online retail sales platform.” These penalties ranged from a warning that a seller violated Amazon’s FPP to removal from the platform. According to Racine, Amazon’s FPP causes prices “to be higher than they would be otherwise.” Additionally, Racine argues Amazon routinely charged third-party sellers to access its online marketplace, allowing it to generate “over $80 billion” in revenue during 2020.
Racine’s lawsuit fails to fully account for the significant benefits Amazon brought to small businesses, particularly in terms of access to a substantial consumer base. This year alone, Amazon reported it has 148 million Prime Users in the United States. As a third-party seller on Amazon, small businesses are provided an opportunity to sell to each of these account holders. This visibility and opportunity simply would not be possible if sellers operated on their own independent platforms.
More importantly, having access to the Amazon consumer base allows sellers to generate significant revenue on the platform. Amazon’s statistics show the average seller on its platform generated $160,000 in sales between June 2019 and May 2020. As for small businesses, the company reported that in the same period, “the number of American SMBs that surpassed $1 million in sales grew by more than 20%.”
These sales and account statistics show how access to Amazon has created a marketplace that small businesses can employ to generate significant financial success, allowing them to prosper and grow. Penalizing Amazon for making this would ultimately only penalize small businesses dependent on the platform for continued prosperity.
Amazon’s marketplace also provided consumers with a wide range of products in one place. Current estimates suggest Amazon offers consumers the ability to purchase over 12 million products, with this number growing to over 350 million when third-party sellers are counted. Additionally, Amazon can offer these products at heavy discounts due to its size compared to other outlets, meaning consumers’ paychecks stretch further. The number of products Amazon can offer to its consumers and its low prices are routinely cited as one of the principal reasons consumers return to the marketplace.
Punishing Amazon for creating this situation for consumers by filing an antitrust lawsuit ultimately shows A.G. Racine has not prioritized consumer welfare but simply wants to penalize the company for its success. While filing antitrust lawsuits might be en vogue for attorneys general, the D.C. lawsuit, if successful, will only deny consumers and small businesses the significant benefits Amazon provided to both groups. The lawsuit also shows policymakers continue to ignore the substantial benefits large companies have provided in favor of a reflexive and outdated “big is bad” mentality. Rather than relying upon this line of thought, Racine and other A.G.’s across the country should recognize the benefits and ensure consumers, not businesses, are at the center of antitrust suits.