May 28, 2018
House Judiciary Committee
2138 Rayburn House Office Building
Washington, D.C. 20515
RE: House Judiciary Committee Examining Amazon Private Label Practices
The Free & Fair Markets Initiative commends the House Judiciary Committee’s readiness to scrutinize the competitive issues in the digital marketplace.
As the Committee seeks testimony from Amazon CEO Jeff Bezos, the below letter provides critical questions about Amazon’s role in the digital marketplace that the company has left unanswered and the Committee should address in order to ensure a level playing field for businesses of all sizes.
INTRODUCTION
Discussion about Amazon customers often narrowly focuses on the shoppers using the Amazon platform, while too often ignoring the third-party sellers who are core customers of Amazon’s services. These third-party sellers — who use the Amazon marketplace to sell products directly to consumers[1] — give a percentage of every sale to the Amazon marketplace, purchase sponsored ads including Amazon via the demand side platform and rely on Fulfillment By Amazon (FBA) for their shipping and logistics needs, all in the name of building a successful brand on the Amazon marketplace.
Third-party sellers now make up more than half of all Amazon gross merchandise sales[2], a dramatic transformation that demonstrates the important role these sellers have played in powering the company’s explosive growth. And Amazon has significant incentives to continue growing its third-party marketplace: According to e-commerce experts, for every dollar that shoppers spend on products from third-party merchants as much as 50 cents goes back to Amazon.[3]
However, as third-party sales have grown on the Amazon platform, so too have the company’s private label products. Amazon now has hundreds of private label products across nearly all product categories, which gives the company tremendous opportunity to experiment and gain a competitive advantage. In fact, in the past two years alone, the number of best-selling AmazonBasics has more than doubled.[4]
Amazon and its executives have long maintained, even under sworn testimony, that the company maintains a barrier between third-party sellers and its own products and does not use data from these sellers to inform its product strategy.[5]
Yet recent reports have emerged that draw these claims into question. A Wall Street Journal investigation exposed that “employees often consulted sales information on third-party vendors when developing private-label merchandise.”[6]
The allegations against Amazon for abusing its marketplace position at the expense of its third-party sellers have been growing louder in recent years. But the devastating economic toll that the coronavirus has had on thousands of small businesses in the past few months heightens the urgency for lawmakers to get answers from the company.
Unfortunately, given Amazon’s massive market power and the control it wields over its marketplace, sellers are understandably reluctant to come forward and directly address these issues. In their place, the Committee must demand that Amazon and Mr. Bezos provide answers to whether the company is gaining a competitive advantage in the digital marketplace at the expense of third-party sellers and ultimately consumers.
- Would you consider third-party sellers a consumer of Amazon’s services? If so, what proportion of the company’s revenue as reported on your Securities and Exchange Commission filings is generated by the third-party seller?
- Many third-party sellers report being forced to raise their prices if Amazon sees a sellers’ good being sold for less on a competitor e-commerce site. Other punishment by Amazon could include not being able to drive traffic to an Amazon listing which reduces a product’s visibility or removing important sale information from the listing as well as removing one-click shopping. Sellers have even reported having their listings deleted when they refuse to match pricing. Does this give Amazon an unfair competitive advantage over its competitors when sellers feel forced to match pricing in order to continue selling on the platform?
- What avenues do third-party sellers have to seek relief from Amazon if they feel that they have been unfairly delisted, have had their account suspended, or otherwise negatively targeted by the company?
- Are you familiar with the concept described by many Amazon sellers as “Buy Box Suppression,” by which the company removes the option for sellers to allow consumers to more easily purchase their goods? Has the company shared formal guidance with third-party sellers outlining when their listing will have the Buy Box removed?
- Many antitrust advocates have warned that the concept of Buy Box Suppression amounts to modern price fixing in the age of the digital marketplace. How does Amazon prohibiting sellers from offering lower prices on other online retail platforms benefit the consumer if the only way for sellers to regain their listing on Amazon is to raise their prices on other platforms or remove their listings all together, therefore limiting competition?
The Committee has a tremendous opportunity to re-imagine our traditional understanding of a consumer to better address the challenges of the modern digital marketplace, and Amazon must be a central focus of that discussion. But Amazon has made clear that it does not intend to willingly participate in a dialogue with the Committee, refusing to commit to whether Mr. Bezos even intends to eventually testify.[7]
Amazon had an opportunity in July 2019 to set the record straight on how it uses third-party seller data. It failed to adequately do so.
Now, amid these complicated and fraught times for third-party sellers, there is more urgency than ever to demand truthful answers.
Sincerely,
Jason Boyce
Founder & CEO, Avenue7Media
Former Top 200 Amazon Seller
[1] https://www.ascentialedge.com/insights/amz-insights-how-brands-can-beat-third-party-sellers-amazon
[2] https://blog.aboutamazon.com/company-news/2018-letter-to-shareholders
[3] https://www.bloomberg.com/news/articles/2019-04-17/is-amazon-too-powerful-its-merchants-are-starting-to-wonder
[4] https://www.marketplacepulse.com/articles/amazonbasics-best-sellers-double-in-two-years
[5] https://www.wsj.com/articles/congress-puts-big-tech-in-crosshairs-11563311754
[6] https://www.wsj.com/articles/amazon-scooped-up-data-from-its-own-sellers-to-launch-competing-products-11587650015
[7] https://www.nytimes.com/2020/05/15/technology/jeff-bezos-amazon-testimony-congress.html
