The 17th of July has been quite the day for Amazon, at least when it comes to antitrust. Firstly, the German Competition Authority (Bundeskartellamt) has closed its abuse of dominance proceedings against Amazon in return for concessions from the online marketplace. Secondly, the European Commission announced that it was opening a formal investigation into possible anti-competitive conduct by Amazon. This blog post takes a closer look at these two closely related developments.
What unites the investigations by the Bundeskartellamt and the Commission is their focus on Amazon’s ‘dual role’: one the one hand, Amazon offers a marketplace for third-party sellers to offer their products to consumers; on the other hand, Amazon offers its own products through its marketplace. This dual role may incentivize Amazon to make life difficult marketplace sellers that it also competes with as a retailer. However, each investigation looks at markedly different practices, and has—for now—ran a different course. Let’s look at each in turn.
The Bundeskartellamt’s investigation
On 29 November 2018, the Bundeskartellamt announced that it was opening proceedings against Amazon (for context, see the CoRe Blog post on this topic). The authority started looking into a number of business terms between Amazon and third-party sellers (e.g. regarding liability and jurisdiction), as well as business practices (in particular the termination and blocking of seller accounts). Now, the Bundeskartellamt has accepted concessions by Amazon to end the investigation. Amongst others, Amazon has offered to do the following:
- Amazon will be more transparent regarding the terms that govern the online platform by making them easier to find, and by announcing any changes to those terms with 15 days’ notice.
- Amazon has abandoned contract terms making Luxembourg the exclusive court of jurisdiction for Europe, making it possible for sellers—under certain conditions—to enforce their rights against Amazon in their domestic courts. (However, Amazon’s requirement that Luxembourg law governs business relations will still apply.)
- Amazon will rebalance its liability obligations: where the marketplace previously allocated all liability to sellers, it will now be liable to the same extent as sellers for intent or gross negligence and for any breach of major contractual obligations.
- One result of the previous concession is that sellers making use of Amazon’s fulfillment program will only have to indemnify customers for returned products when Amazon proves that the returned product is in fact the one sent by the seller. Moreover, sellers will now be able to demand that products returned to Amazon are actually returned to them, and to object to Amazon’s reimbursement decision within 30 days.
- Amazon’s right to terminate contractual relations with sellers/block them will be circumscribed: (i) in case of ordinary termination, Amazon has to give 30 days’ notice; (ii) in the case of extraordinary termination (based on alleged legal infringements by a seller), Amazon is obliged to inform the seller and provide reasons.
- Amazon will drop its so-called ‘parity requirement’, according to which sellers had to provide products of the same high quality as the one that they use in other sales channels. In 2013, the Bundeskartellamt already prompted Amazon to drop parity clauses that had the same effect but concerned price rather than quality.
- Amazon will put sellers on par with its own retail operation when it comes to reviews: previously, reviews of third-party products by external providers (‘review clubs’) were no longer posted or removed, while Amazon did make use of its own ‘Vine’ review club; now, Amazon will make its Vine reviewing program available to third parties.
Given Amazon’s concessions, the Bundeskartellamt did not have to come to a proper decision. However, the authority did give us some insight into its assessment of Amazon’s potential abuse of dominance.
When it comes to market definition, the Bundeskartellamt stated it was ‘inclined to assume a product market for online marketplace services’ (which is in line with the influential theory of Filistrucchi et al.). On market dominance, the authority noted that ‘a large part of German online sales of well over 40% is generated via the amazon.de marketplace’ and that Amazon’s significance as a ‘gatekeeper’ for customer access is therefore high.
The Bundeskartellamt’s discussion of theories of harm was equally limited, but it did make a clear division between Amazon’s exclusionary and exploitative practices. The authority noted that allegations regarding the termination and blocking of seller accounts, parity requirements and reviews were reviewed as exclusionary abuses. The reason is that these practices put sellers at a disadvantage compared to Amazon’s own retail operations. The other practices were reviewed as exploitative abuses: rather than having their origins in Amazon’s ‘dual role’, they are explained by Amazon’s market power vis-à-vis sellers.
Beyond the broad range of practice that Amazon will change, the Bundeskartellamt’s decision stands out for two other reasons. Firstly, Amazon will adjust its practices not only in Germany but worldwide (including in North-America). While national proceedings have led to EU-wide commitments before (e.g. in the case of Booking.com), the scope of these commitments is truly remarkable. Perhaps Amazon hopes it will appease the growing chorus of critical voices in the United States. Secondly, the duration of the proceedings was limited to only seven months. In fast-moving digital markets, where even brief periods of exclusionary practices can have lasting effects, the relative speed of these proceedings must be applauded.
The European Commission’s investigation
The Bundeskartellamt did not look at every contentious practice engaged in by Amazon. More specifically, the authority clarified it did not take up complaints by sellers ‘regarding the use of marketplace data, ranking and Buy Box’. In a press release published at precisely the same time as the Bundeskartellamt’s, the Commission announced it was looking at exactly those practices.
This investigation doesn’t come out of nowhere. In September 2019 already, Commissioner Vestager stated the Commission was looking at how Amazon uses the data it gathers on third-party transactions to boost the sales of its own products (see the CoRe Blog post on this topic). Now, that preliminary investigation has turned into a formal one, focused on two practices:
- ‘The standard agreements between Amazon and marketplace sellers, which allow Amazon’s retail business to analyse and use third party seller data. In particular, the Commission will focus on whether and how the use of accumulated marketplace seller data by Amazon as a retailer affects competition.’
- ‘The role of data in the selection of the winners of the “Buy Box” and the impact of Amazon’s potential use of competitively sensitive marketplace seller information on that selection. The “Buy Box” is displayed prominently on Amazon and allows customers to add items from a specific retailer directly into their shopping carts.’
The short press release does not offer many details on the investigation, but it is clear that the (anti)competitive effects of Amazon’s use of third party seller data are at the heart of it. The Commission will definitely be looking at how the use of such data affects the ranking of products on the online marketplace (and in particular the ‘Buy Box’, which is responsible for the vast majority of transactions). It is unclear whether the Commission is also looking at Amazon’s use of third party seller data for product development—an issue the media has focused on repeatedly over the past few years.
While the investigation is now officially underway, a lot of work remains to be done. Beyond defining Amazon’s market and its dominance on it, the Commission will have to come up with a credible theory of harm. It may draw inspiration from its Google Search decision, where it found that Google favoured its own comparison shopping services over those of third parties in its search rankings. However, the Commission may also want to rely on a more general theory of discrimination under Article 102(c), or even update margin squeeze for the platform economy.
Another challenge is to come up with an effective remedy. A structural separation between Amazon’s marketplace and retail activities, as proposed by some scholars and policymakers (especially in the U.S.), seems pretty far away. Another option consists in ‘firewalls’, a milder form of separation where business units still operate under the same umbrella. However, given the EC’s track record, a purely behavioural remedy (e.g. a limitation on the ways in which Amazon can use third party seller data) appears more likely.
While the coordinated action of the Bundeskartellamt and Commission made headlines, at least three other competition authorities also have their eyes on Amazon’s conduct.
Firstly, the competition authority of Luxembourg, where Amazon has its seat, has opened an investigation. While the authority does not explicitly name Amazon in its announcement, its description of its target—‘an international firm with its European in Luxembourg that offers access to its websites as well as various platforms to third party sellers’—does not leave much up to the imagination.
Secondly, the Italian Competition Authority has opened a preliminary investigation into alleged self-preferencing: Amazon only grants certain advantages (e.g. in terms of visibility) to third party sellers that make use of its ‘Fulfillment by Amazon’ logistics program. Sellers that do not make use of Amazon’s logistics service are thus being discriminated against. Ambitiously, the Italian Competition Authority has already set an end data for its investigation: 15 April 2020 (one year after opening it).
Thirdly, the Austrian Competition Authority weighed in on the latest developments with another well-timed press release. In February 2019, the authority had started a preliminary investigation in discriminatory/self-favouring conduct by Amazon. Now, it states that—based on Amazon’s changes to its business terms and practices—it will not further pursue its investigation. However, it will continue to observe Amazon and reserves the right to investigate further.
Finally, the avalanche of antitrust investigations makes it easy to forget that—just a week ago—the EU Regulation on promoting fairness and transparency for business users of online intermediation services was published (see the CoRe Blog post on the topic). Indeed, some of the ‘concessions’ offered by Amazon are actually mandated by that Regulation.
In conclusion, it’s clear that the ‘dual role’ of big tech companies as both platforms and operators on their own platforms remains a priority for agencies and policymakers. For Amazon specifically, this means that these are not nearly the last changes to its business practices.