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What Amazon's Legal Battle With the FTC Means for the Future of E-Commerce

What Amazon's Legal Battle With the FTC Means for the Future of E-Commerce

  The United States government has filed a lawsuit alleging Amazon is deceiving customers with confusing membership signup and cancellation processes for Prime memberships. This marks a third case against them this month after Alexa and Ring units settled privacy breaches that threatened customers' data. Lina Khan, Chairwoman of the Federal Trade Commission (FTC), initiated this action against large technology platforms. She has long advocated that more vigorous action be taken by the FTC against these entities. What It Means for the Future of E-commerce Amazon has come under increased scrutiny by activists, legal scholars and even US presidential candidates who accuse it of anticompetitive behaviour. Amazon controls almost half of online retail sales in the US alone and boasts one of the world's most robust cloud computing businesses - in addition to being one of the world's premier sellers of digital ads. Recode has learned that the Federal Trade Commission (FTC) is investigating three lines of inquiry regarding Amazon, although no formal investigation is underway at this time. Instead, FTC officials are gathering intel from competitors about whether Amazon's tactics violate federal consumer protection law. First, the FTC is investigating whether Amazon's pricing and bundling of services create barriers to entry. For instance, its decision to combine Prime subscription service with delivery membership and streaming video service could impede competitors. Furthermore, they're looking at whether Amazon's practice of forcing consumers to sign up for Prime in order to buy products online violates antitrust laws. Second, the commission is conducting an inquiry into Amazon's use of sales data to discriminate against Marketplace sellers and reduce competition. Khan argues that Amazon's practice of going directly to manufacturers for products at lower costs, undercutting Marketplace seller prices and giving its first-party products prominent placement in search results reduces market competition while increasing consumers' purchasing costs. This assertion rests on an incorrect understanding of how two-sided markets function. Khan asserts that existing antitrust analysis fails to recognize how platform businesses prioritize growth over profitability, and how concentration of control over user data may allow new forms of anticompetitive conduct. As such, she supports proposals to prohibit vertical mergers and mandate automatic review for any deal including certain user data. These policies would increase firm costs, discourage innovation, and lead to higher prices for consumers; hence they should be scrapped. Instead, antitrust policymakers should prioritize reforms that target the real issue: how best to apply antitrust law within an environment of platforms and two-sided markets. What It Means for Small Businesses Editor's note: This story is part of NPR's ongoing coverage of the Federal Trade Commission and Amazon. In its lawsuit, the FTC alleges numerous consumer protection violations committed by Amazon; furthermore, it seeks monetary civil penalties; however no exact figure was given by the agency. This case marks the Consumer Financial Protection Bureau's most ambitious effort yet against business practices it believes damage consumers. It details allegations such as Amazon using "dark patterns" to trick customers into subscribing automatically, then trap them through psychological tricks or making cancellation harder than ever - including its four-page, six-click cancellation process which "resembled a labyrinth". These practices allegedly harm shoppers. The FTC alleges in its complaint against Amazon that its practices make it difficult for consumers to locate or understand the cost of Prime membership, such as mismatching prices across services (i.e. Amazon displays high prices in some instances while showing reduced costs elsewhere) which violate consumer protection laws like FTC Act, Restore Online Shoppers Confidence Act and others. There is the potential that the FTC's case could have wider antitrust ramifications; however, such an action seems unlikely for now. Lina Khan has made headlines recently in the antitrust world with her 2017 law journal article which critics deemed incorrect in applying economic principles of two-sided markets while overlooking how certain forms of vertical integration may actually promote competitiveness. At last, it may be impossible to reduce Amazon's dominance without some form of new regulation, although such an effort would likely include public utility regulations or nondiscrimination rules. Applying either of those to all Amazon's businesses that serve other businesses might prove politically difficult - though at least considering such options might help. The Federal Trade Commission's lawsuit against Amazon underscores the necessity of reinvigorating traditional antitrust principles. What It Means for Consumers The Federal Trade Commission's latest lawsuit against Amazon hits at the core of their business model, alleging they dupe millions of consumers into signing up for Prime and then make it difficult to cancel. It marks their most aggressive action yet against Amazon and shows Chairwoman Lina Khan's commitment to controlling Big Tech over data protection concerns. The agency alleges that Amazon employed deceptive design tactics known as dark patterns to enroll consumers without their knowledge into its Prime subscription and then make cancelling difficult, which violated federal law and caused injury by frustrating them, undermining trust between Amazon and consumers, and costing consumers money, according to their complaint. This marks the third time this month that the Federal Trade Commission (FTC) has taken Amazon to task over consumer protection violations related to its Alexa and Ring divisions. Amazon agreed to pay $30 million to settle allegations that its Alexa speakers failed to delete children's voice and location data collected, and also settled with FTC over claims its doorbell camera Ring violated users' privacy. In both instances, the FTC claimed that these companies were violating a 2010 consumer protection law by automatically billing consumers and then refusing to cancel subscriptions. They used this legal argument against MoviePass (and its former parent Helios and Matheson), Intuit's Credit Karma and Ericsson Vonage over their auto-renewal and cancellation practices. If the FTC prevails against Amazon in this latest lawsuit, its victory could have widespread ramifications for how e-commerce operates in the future. If the lawsuit goes through as planned, Amazon would need to provide clearer instructions for signing up and cancelling Prime subscriptions as well as disclose business relationships between itself and other firms that supply products for the marketplace or give Amazon products with their "Amazon Choice" labels - in order for customers to make informed choices when shopping on-line. What It Means for Amazon Amazon and the FTC's ongoing saga has demonstrated the need to reevaluate antitrust policy. Now-FTC Chair Lina Khan mischaracterized two-sided markets and competetive conditions, leading her to conclude that Amazon's predatory pricing of Kindle e-books harmed publishers while increasing prices for consumers. Khan's argument fails to take into account that two-sided platforms possess unique features that set them apart from one-sided platforms. Market participants on both sides interact in real time and exchange information - this makes it more challenging than traditional markets to identify anticompetitive conduct like setting prices below cost on one side of a marketplace, spurring demand while solving chicken-egg issues; additionally, such platforms facilitate vertical integration by enabling firms to pool complementary assets together for mutual gain. Amazon uses fulfillment and logistics services to reduce delivery costs for Marketplace sellers while maintaining high-quality customer service. Furthermore, by creating incentives to deliver quickly to its customers it increases membership value and makes Prime more desirable among consumers. Like Amazon's Marketplace, when customers abandon shopping due to poor shipping speeds or service, it will reduce its attractiveness for them and create entry barriers for competing retail platforms. Therefore, regulators need to recognize that two-sided platforms possess unique features which require them to take a unique approach towards antitrust analysis. Recode understands that the FTC's inquiries to Amazon indicate it may conduct an official probe into three areas, as outlined by Recode:

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