EU Competition Complaints Against Amazon: No Big Deal?

Big Tech is moving into the antitrust gunsights again. For Amazon, the first shot across the bow has come for the EU in the form of two complaints alleging anticompetitive behavior by Amazon. The first complaint, in July 2020, focused on the Buy Box, a key component of the Amazon ecosystem. Notably, that complaint did not specifically reference private label brands owned by Amazon, a primary concern of US authorities. Instead, the EU is focused on broader issues covering all of Amazon Retail’s competition against third party sellers on its Marketplace platform. Margrethe Vestager, the EU competition commissioner, seems prepared to cast a wide net around any Amazon activities that unfairly favor its own first party sales.

The most recent complaint, filed in November 2020, reiterates concerns about the Buy Box, but also complains about the conditions imposes on sellers by Amazon if they are to acquire the coveted “prime” badge, as well as concerns about Amazon’s pressure on sellers to use Amazon’s own logistics network, Fulfillment by Amazon (FBA).

EU competition policy focuses on ensuring fair competition within markets, and is more generally much more attuned to the relationships between different market operators, rather than focusing on strict and limited interpretations of consumer benefit. Unlike the US, lower prices and consumer benefits are not enough to insulate Amazon from EU complaints. If complaints are validated, the EU traditionally hasn’t favored structural remedies like breaking up a company. Instead, it usually seeks binding agreements about future behavior, as it did with Amazon in a previous case focused on the ebook market.  It may also – as it has with Google – impose very large fines.

Even without a breakup, the EU poses some apparent – but perhaps not so serious – threats to Amazon. First, the EU is creating a pathway that US regulators and Congress may follow, one illuminated by the light that the EU process sheds on Amazon’s behavior. And there is plenty of evidence that Amazon does tilt the playing field – not all the time, not for all items, but often enough.

Second, the EU is also objecting to something that’s at the core of Amazon process in retail – the connection between its Marketplace and its logistics network. Amazon has the best ecommerce logistics network (the US and Europe). Third-party sellers recognize that if they use that network, they will deliver faster, cheaper, and more consistently. And those factors play heavily in deciding who wins the Buy Box – Amazon’s default selection for purchases, which strongly influences who actually gets the sale. That in turn makes use of Fulfillment by Amazon (FBA) much more attractive. The EU may well step in and require that Amazon change its algorithm to eliminate that connection: in that case, using FBA would no longer help a seller win the Buy Box. However, even if this split was mandated, it would have minimal impact on Amazon (which after all doesn’t actually make money on FBA anyway).

Third, the EU has also signaled that the existing link between using FBA and acquiring the important “Prime” badge for an item is problematic. But breaking that link would also have almost no impact on either Amazon or its sellers. Amazon could easily find other metrics for the Prime badge, and it would still be critically important to sellers. And Amazon has obvious workarounds. It has already realized that leaving sellers to fend for themselves on fulfillment is a powerful inducement to use FBA, which Amazon prefers both because FBA volume helps fill its huge logistics channel, and because Amazon seeks tight control over its entire delivery chain, which FBA provides. To encourage FBA take-up, it might for example simply highlight (possibly within the Buy Box itself) that it explicitly guarantees delivery times for sellers that use FBA, but not for others.

Beyond workarounds, Amazon is already transitioning toward a world where its platform is dominated not by its own retail activities, but by the 3rd party Marketplace. EU pressure may accelerate that shift, but that’s a feature no a bug, from Amazon’s prspective: Amazon loses money on its own retail operations and makes good money on Marketplace, so emphasizing the latter is a major plus.

Moreover, a recent report by the European Court of Auditors found that the EU took an average of 4 years to complete investigations, and often longer – Google is still appealing is fine from an action that started more than a decade ago.  Amazon knows how to play the game, and it has some decent defenses against some of the charges. It will be a long time before the EU manages two pins out of three.

Finally, if in the end some modifications are required, Amazon can make them without having to change its fundamental business model (beyond its natural evolution). So even though the EU complaints cast a fairly wide net, and the EU does have the formidable hammer of huge fines, that net and those fines are not nearly wide enough or big enough to bother Amazon much at all.

Written by Dr. Robin Gaster.

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