How Amazon Has
Abused Its Monopoly Position

Amazon.com, Inc. was founded in 1994 by Jeff Bezos as an online bookseller. Today Amazon is one of the largest eCommerce retailers in the world. Amazon has considerable market power in the U.S. online retail market. In many product categories, ranging from household essentials to sports, fitness and outdoors, Amazon is reported to account for well over 50% of online sales. In certain categories like book sales, Amazon accounts for over 50% of print book sales and over 80% of e-book sales.

Abuse of Monopoly Power

Amazon has abused its monopoly power in a number of different ways. According to a Wall Street Journal (WSJ) expose[i], Amazon told smart thermostat maker Ecobee that it had to share data from its voice enabled devices even when customers weren’t using them. Ecobee declined to do so. Ecobee’s devices use Alexa, the voice powered assistant pioneered by Amazon. The company was worried that sharing data with Amazon would violate its privacy policy and that Amazon could use the data to gather insights that it could utilize in building competing devices. Allegedly, Amazon told the company that if Ecobee didn’t share the data, it would affect its ability to sell its devices through the Amazon marketplace. In addition, Amazon told the company that it could potentially not retain Amazon’s certification on future models or have access to big selling events like Amazon Prime Day.

Misappropriation of Third-Party Seller Data

One of the major concerns that third-party sellers have had with Amazon is lack of protection of third-party seller data from those at Amazon charged with developing first party products for sale through Amazon.com. There have been many reported situations in which Amazon has leveraged this information to duplicate popular profitable products and compete directly with third-party sellers. Amazon claims that it has no incentive to abuse the trust of its third-party sellers as they make up over 60% of sales on its platform.

There have, however, been several public reports that contrary to its own internal policy and testimony before Congress that Amazon has routinely misappropriated third-party seller data to build competing first party products. According to a July 2019 report, a former Amazon employee who worked in product management told The Capitol Forum, “I used to pull sellers’ data to look at what the best products were when I was there … That was my job.”[i]

Potential Remedies

While Amazon claims to have established barriers for its private label group from accessing market performance data of third-party products, there is sufficient evidence to show that Amazon employees have violated lax internal company policies to gain access to third-party data. To avoid this issue, the Justice Department could sue Amazon to spin off its private label group so it can no longer access third-party data.

There have been numerous instances where the dominant marketplaces like Amazon have leveraged their monopoly power to give its own products preference over third-party products. For example, Amazon has been shown to display its own products higher up in the search rankings giving their products a significant advantage over others. This self-preferencing behavior has caused third-party players to lay off employees, reduce investment in their products and incur unnecessary expenses in advertising on the respective marketplaces to gain the needed visibility.

Congress should consider implementing non-discrimination rules to ensure fair competition and promote innovation in digital markets. This has been done before. In 2015, the Open Internet Order written by the Federal Communications Commission (FCC) prohibited internet service providers from picking winners and losers among content providers. These rules should also establish audit firms that can audit the monopoly players on a regular basis to ensure that these companies are abiding by the non-discrimination rules.

Shirish Nadkarni is a serial entrepreneur with proven success in creating multiple consumer businesses that have scaled to tens of millions of users worldwide. Shirish was the co-founder of Livemocha, the world’s largest language learning site with 15+ million registered members from over 200 countries, which was acquired by RosettaStone in 2013. Prior to Livemocha, Shirish was the founder of TeamOn Systems, a mobile wireless email pioneer that was acquired by BlackBerry in 2002. He is also the author of Winner Takes All: Case Studies in How Online Marketplaces Are Creating Modern Monopolies and From Startup to Exit: An Insider’s Guide to Launching and Scaling Your Tech Business.

[i] Amazon: Former Employee Challenges Executives’ Denial About Company’s Use of Sellers’ Data, THE CAPITOL FORUM (July 18, 2019).