While it seems evident that the pandemic has wrecked havoc over many prominent industries including e-commerce sector, yet a few companies have figured out how to make the best out of worse situation. Amazon indeed knew how to make gourmet meal out of the leftovers but it would be an understatement. In reports released in August, Amazon registered nearly $89 billion in sales and $5 billion in profit during the second quarter, setting company records on both the figures and blowing away Wall Street expectations as Covid-19 pandemic shutdowns pushed more and more shoppers online into Amazon’s arms.

The question that naturally comes to a mind is that why despite its frequent run-ins with the regulators around the world, Amazon is still up and running and consuming everything like a black hole, with its latest bump being with the Competition Commission of India? This also just came after the recently concluded antitrust congressional hearing in the US. To understand all about the hearing, let’s try to understand the chronology and reasons of the events as to why they happened.

In June 2019, The Department of Justice and Federal Trade Commission agreed to divvy up antitrust investigations into big tech companies, with the Justice Department looking into Google and Apple, while FTC to investigate Facebook and Amazon. This happened after The FTC’s Bureau of Competition announced in February 2019 that it was creating a new task force dedicated to “monitoring competition in U.S. technology markets, investigating any potential anticompetitive conduct in those markets, and taking enforcement actions when warranted.”

Why the Investigation was launched?

With the rampant rise of Amazon as a leading e-commerce entity, there were multiple allegations which came to the fore for the violation of competition laws against the said entity. The company currently operates in OTT platform, cloud computing, delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer and a plethora of other streams. An ideal competitive market, as intended by the legislations, is often portrayed as the stylized hypothetical of a “perfectly competitive” market with homogenous products, a large number of well-informed buyers and sellers, low entry barriers, low transaction costs and businesses offering their goods and services at a price above the marginal cost in order to avoid losing their customers to other competitors - assumptions all of which seemed to have failed in the given business model.

Fulfilment by Amazon (FBA)

Amazon’s logistics service, also known as Fulfillment by Amazon (FBA) in the retail service, allows Amazon sellers store their goods in the company warehouses and have the entity handle the packing, shipping, and customer service for these orders. Amazon sellers can also use FBA to have the company store, fulfill, and ship items that the seller has sold outside of Amazon — whether on their own website or on other shopping marketplaces like Etsy and eBay.

The FTC’s queries about FBA have particularly revolved around the service’s pricing structure. As a matter of fact, Amazon charges its sellers more for FBA services when they are used for an order placed on a competing website, instead on its own.

Amazon Prime

Another reason why Amazon’s business model caught FTC’s eyes is its Amazon Prime services. In May 2018, new members in the US were charged $119/year and $59/year for an annual Prime membership and annual Prime Student membership respectively. In it is Rs 999 per year. Subscribing to Prime involves various perks for its users including unlimited one-day shipping; access to a huge online library of TV shows, movies, and songs; free online photo storage etc.

The FTC investigated into the question of whether this bundling of services allows Amazon to unfairly undercut competitors. It is not clear whether Amazon Prime generates any profit but one thing was clear enough, those competitors who made money from an individual service suffered huge losses. For a company like Amazon which has multiple profit-making arms, it was a matter of trade off to incur short term losses in exchange of access to long term consumer database through Amazon Prime.

Conflict of Interest

Amazon’s inventory based business structure in retail sector encouraged it to compete against its own sellers. Amazon invites small and midsized businesses to sell directly to the customers on its website through a platform known as the Amazon Marketplace. But Amazon has created more than 100 of its own brands that often compete directly against Amazon’s third-party sellers. The question which arises is whether Amazon unfairly uses sales and other data from its sellers to undercut or otherwise beat out these same small and midsize merchants.

Amazon’s frequent run-ins with the Regulators

This isn’t the first run-in of the said entity with competition regulators across the globe. The company is now being probed by almost all the major economies of the world - be it the US, UK or Germany. Closer home, the entity is being investigated by the Indian Competition Commission on various charges including practice of discriminatory conduct where it charges a higher rate of margin from the independent retailers (28 per cent) in contrast to its homegrown brands like the Cloudtail India and Appario (6 per cent). A recent filing by an Indian trade group with the CCI really shows the path in such a case.

The hearings and the way ahead

Amongst the plethora of questions which come to the fore, the one which stands out is the Amazon’s policy on the use of third-party seller data. The most direct response in this regard has been in the US Congressional Hearing where the Committee cited interviews with the third-party sellers to suggest that Amazon is using their data to improve its own products, and also leveraging the access to tune the pricing strategy. Even though the company CEO said that the company’s policy is clear on prohibiting use of such seller data, he gave no assurance if there was no breach, or the policy was implemented at the very first place.

The original intent of antitrust laws was to place consumer welfare, and the protection of competition, at its center. It is from this perspective also Amazon is an interesting case. They have driven down prices for consumers and increased product choice. Antitrust regulators are now looking to find other ways to identify and restrain the company’s growing market power. The fact that many products offered by digital business are technically free has created a conundrum for regulators looking to apply old antitrust standards to the modern economy.

One of the possible interventions may be now is to shift from the traditional consumer based approach to a new dynamic market-fluid approach in which the equilibrium in the market is maintained even at the cost of making products and services a bit expensive. Due to vast capital in its coffer, it is possible to say that Amazon has engaged in predatory pricing to lure the customers away from other platforms, even at the cost of incurring initial losses.

There is also a need to reinterpret the jurisprudence on data privacy laws. The targeted advertisements by Amazon towards its customers is due to the fact that it has stored a vast amount of data of its users which allows it to influence consumer’s decision making by manipulating search results and setting preferences. It becomes even more dangerous when it starts using that data to promote its own product thereby killing off competition. A market place must serve as a neutral online platform where only exchange of goods and services take place and should not go beyond that. Offering of logistics services, along with acting as an e-commerce marketplace, makes it in itself a new kind of market under competition law jurisprudence which is undefined as of yet, and hence makes it difficult for regulators to stick to any specific anti-competitive charge.

Overall course of the events suggest that the regulators across the globe are now able to zero down the questions which pertain to competition laws. Whether FTC finds anything incriminating in the said matter is something for the time to tell, but the fact that there is a correlation between an entity making short term losses, and it gaining access to huge consumer databases in a very short duration of time is now amply clear. The only sure thing out of the whole process for the said entity is heightened scrutiny from the regulators across the globe as is carries out is business activities.