At Wednesday’s major tech antitrust hearing in the House Judiciary Committee—featuring the CEOs of Amazon, Apple, Facebook, and Google—Amazon CEO Jeff Bezos said he couldn’t promise that the company hasn’t violated its own policies on fair competition with third-party sellers.
Some context: There’s several ways customers get products through Amazon. In some cases, Amazon purchases products in bulk from suppliers at wholesale rates, after which the merchandise is shipped to Amazon warehouses for resale to customers (“first-party” sales). Other third-party merchants instead use Amazon as a digital storefront; some ship the merchandise themselves, while others ship it to the warehouses, after which Amazon fulfills sales, logistics, and customer service. Then there are in-house Amazon brands like Amazon Basics sourced entirely from the company’s own supply chain.
Bezos has pointed to the proliferation of third-party sellers on Amazon as evidence that the company isn’t trying to suppress competition in the e-commerce market. That could be a major factor in any antitrust case, as Amazon controls an estimated 38 percent of U.S. e-commerce sales. In April 2019, he said that first-party sales had declined to 42 percent of gross merchandise sales, while third-party sales were 58 percent and increasing every year.
However, that defense only works if Amazon is playing fair with independent sellers rather than, say, using underhanded tactics to undercut their businesses. The company says it has a prohibition on collecting anything but aggregated data from third-party sales, but interviews with over 20 former employees by the Wall Street Journal published in April 2020 suggested that it was common practice for Amazon employees to bend or break those rules to gain a competitive edge on the company’s own in-house offerings.
The Journal also reported that Amazon considers data from as little as two merchants to be “aggregated” and that such data was used by the company to plan launches of new products or in-house brands. While the company told the paper in-house brands accounted for just one percent of its $158 billion in annual retail sales (not counting Amazon devices like Echo speakers, Kindles, and Ring cameras), former Amazon executives countered they had been given incredibly ambitious targets such as increasing in-house brand sales to 10 percent of retail sales by 2022.
Amazon told the Journal at the time accessing proprietary data was against its policies and that an investigation was ongoing. During the hearing on Wednesday, Bezos told Representative Pramila Jayapal that he “can’t guarantee you that that policy has never been violated.”
“We continue to look into that very carefully,” he added. “I’m not yet satisfied that we’ve gotten to the bottom of it, and we’re going to keep looking at it. It’s not as easy to do as you would think because some of the sources in the article are anonymous.”
Bezos also confirmed to Representative Kelly Armstrong that Amazon considers as few as two products in a category to be fair game for “aggregated” data mining—despite the fact it would be easy for Amazon executives to disentangle it, especially if one of those companies dominated the category.
As the Journal noted, members of Congress also asked Bezos about Amazon’s venture capital fund, which allegedly has invested in competitors and gained access to proprietary data it used to launch competing products. Representative Jamie Raskin extracted an answer from Bezos on whether it sells Echo speakers below cost; Bezos confirmed they sometimes are, especially during sales. Representative Mary Scanlon quizzed Bezos over a price war with Diapers.com, which Bezos replied was “11 years ago so you’re asking a lot of my memory.”
Another exchange about Amazon’s “inherent conflict of interest,” this time with House Judiciary antitrust subcommittee chair Representative David Cicilline, didn’t go very well. Per a transcript by TechCrunch:
Cicilline: Isn’t it an inherent conflict of interest for Amazon to produce and sell products on its platform that compete directly with third party sellers, particularly when you, Amazon, set the rules of the game?
Bezos: Thank you… no, I don’t believe it is. We have… the consumer is ultimately the one making the decisions about what to buy, what price to buy it at, who to buy it from.
Cicilline: That’s not the question, Mr. Bezos. The question is is there an inherent conflict of interest. …You said you can’t guarantee that the policy of not sharing third party sellers data with Amazon’s own line hasn’t been violated, you can’t be certain. Can you please explain that to me? Can you list examples of when that policy has been violated? Shouldn’t third parties know for sure that data isn’t being shared with your own line of competitors?
Bezos: What think is important to understand is we have a policy against using the individual seller data to compete with our private label products.
Cicilline: You couldn’t assure Ms. Jayapal that that policy isn’t violated routinely!
Bezos: Well, I mean, we are investigating that. I do not want to go beyond what I know right now, but we are as a result of that Wall Street Journal article, we are looking at that very carefully.
Amazon has faced accusations of other unfair or anticompetitive business practices concerning first-party and third-party sales to gain leverage and increase its margins, such as imposing arbitrary terms and dispute resolutions on marketplace sellers. In other cases, Amazon has reportedly terminated third-party sellers’ accounts and pushed them into a first-party relationship where Amazon can control prices, as well as done the exact opposite, terminating first-party sales vendors and telling them to instead sell on the marketplace. European regulators have launched their own investigation into whether Amazon abuses its dual role as a marketplace operator and online retailer to rapidly grow its in-house brands.
“We are very concerned about this innovation kill zone that seems to be emerging,” Representative Joe Neguse said during the hearing.
“What do you have to say to the small businesses that are talking to Congress because you simply aren’t listening to them?” Representative Lucy McBath asked Bezos at another junction.
“I do not think that’s systematically what’s going on,” Bezos responded. “Third-party sellers in aggregate are doing extremely well on Amazon.”