FTC v. Amazon: A Closer Look at Pricing for the Holiday Season

Heading into this year’s holiday shopping season, the FTC filed a long-anticipated complaint against Amazon, alleging that the company’s practices actually increase prices for consumers. Specifically, the FTC takes aim at Amazon’s so-called “Buy Box,” a feature that draws consumers’ attention and makes it quick and easy to select the best offer for a product. The problem, according to the FTC, is that Amazon conditions “winning” the Buy Box—which merchants know drives sales—on a product being offered for the lowest prices on Amazon, and not somewhere else. The FTC claims that this amounts to “anti-discounting” conduct which harms Amazon’s rivals and ultimately consumers.

For which products, one asks? All of them, at least in theory, as the FTC’s “online superstore market” by virtue of its generality encompasses any product sold on Amazon, but paradoxically excludes the very “vertical” online retailers (e.g., Best Buy) that it claims Amazon is assiduously “surveilling” (or, in other words, competing with). Amazon recently answered the FTC’s complaint with a motion to dismiss that argues the FTC “does not identify a single product or product category for which prices have risen as a result of the challenged conduct” and instead “assumes that Amazon’s efforts to keep prices low on Amazon somehow raised consumer prices across the whole economy.” At bottom, the breadth of the FTC’s claim, which is a necessary consequence of its general retail cluster market definition, is likely far too large to fit down the legal chimney.

Additionally, as Amazon also explains in its motion to dismiss, its practice of not featuring an offer in the Buy Box when it knows consumers could get the product more cheaply elsewhere is not only a procompetitive way to build trust with consumers by ensuring they get the best deal, but simply the age-old retail tactic of “steering” consumers to the best deals—which benefits both the retailer and consumers. Moreover, even if the FTC’s “anti-discounting” theory survives Amazon’s motion to dismiss, that’s as far as it is likely going to get. In the private class action against Amazon, also filed in the Western District of Washington, the court held that “no Court has ever found a policy like these to violate the Sherman Act.”

Amazon’s motion to dismiss also provides additional details about its mysterious Project Nessie, a mothballed project that the FTC separately challenged as a distinct scheme to raise prices. And they are not favorable to the FTC. As Amazon makes clear, Project Nessie was designed to match Amazon’s prices with the second-lowest competitor instead of the absolute lowest for certain products for a limited period. The FTC’s theory that Project Nessie contributed to higher prices thus stands on its head its other claim that Amazon’s Buy Box practices—which are aimed at matching the lowest price—are anticompetitive. Put another way, Amazon is damned if it matches the lowest prices, and damned if instead matches the second lowest prices because it didn’t match the lowest prices!

The FTC’s many confusions obscure the fact that Amazon is giving consumers low prices. Indeed, a recent study found that, for the 7th year in a row, Amazon is the lowest-priced retailer by an average of 16 percent across 14,000 products. The study also highlighted, in a way seemingly at odds with the FTC’s complaint, not only that Amazon’s price differential had widened from 13 percent last year, but that Walmart is becoming more competitive as it works to match Amazon’s pricing. And, in contrast to the FTC’s total exclusion of brick-and-mortar competitors from its market definition, an earlier study found that half of shoppers typically consult a retailer’s online store or mobile app before shopping in-store; a quarter do so in-store; and over a third of in-store shoppers look at a competitor’s website or app.

All of this confirms the FTC’s awkward position. Like the Grinch faced with little Cindy-Lou Who, it avers, “there’s a light on this tree that won’t light on one side. So I’m taking it home to my workshop, my dear. I’ll fix it up there, then I’ll bring it back here.” In other words, Amazon’s e-commerce platform and all the presents it will send for delivery may appear to be working just right, but really need to be fixed by the FTC. And, having attempted to link Amazon with higher prices this holiday season, the FTC, just as the Grinch, now stands waiting to hear both the courts and consumers validate its legal ruses—

“They’re finding out now that no Christmas is coming! They’re just waking up! I know just what they’ll do! Their mouths will hang open a minute or two, then the Whos down in Who-ville will all cry BOO-HOO!”

But unfortunately for the FTC, like the Whos down in Who-ville, both courts and the American consumer are smart enough to recognize the benefits Amazon provides. Perhaps the FTC will eventually come to its senses regarding Amazon, but that would be even more of a Christmas miracle than the Grinch cutting the roast beef.