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FTC Could End Amazon Prime Benefits for Consumers

by Aswin Prabhakar
On the lefthand side is the FTC building; on the righthandside is the Amazon logo on a phone.

The Federal Trade Commission (FTC) reportedly has a far-reaching antitrust lawsuit against Amazon in the works alleging that the e-commerce platform abuses its power to reward online merchants that use its logistics services and penalize those that don’t. But the allegation that Amazon’s business practices constitute anticompetitive behavior relies on questionable economic logic and little evidence of actual competitive harm. The FTC’s likely solutions, including potentially breaking up Amazon, would come at the expense of convenience, a wider selection of products, fast delivery, lower prices, and valuable features like product ratings and personalized recommendations that consumers enjoy.

The FTC’s case echoes claims that then-law student and now FTC chair Lina Khan made in a 2017 Yale Law Journal article arguing that Amazon’s logistics integration creates unfair competition. But the basic economics of two-sided platforms contradicts Khan’s hypothesis that Amazon will discriminate against third-party sellers. Two-sided platforms like Amazon connect two distinct groups, in this case, merchants and shoppers. The platform needs to keep both sides satisfied to thrive. If Amazon provides poor service to merchants by discriminating against those who don’t use its logistics, then merchants can leave the platform. And if merchants leave, the platform becomes less valuable to shoppers. So, it goes against Amazon’s interests to systematically discriminate. In fact, the empirical evidence suggests merchants are thriving on Amazon’s platform.

Since Kahn published her law journal article in 2017, third-party sellers’ share of total units sold on Amazon has grown from 50 percent to 60 percent as of the last quarter. Meanwhile, third-party sellers’ sales revenue has increased more than three and a half times, from around 32 billion in 2017 to nearly 118 billion in 2022. The growth in the seller community is even more telling: Amazon reports that 60,000 sellers eclipsed $1 million in sales in its marketplace in 2021—double the number from three years prior. Meanwhile, approximately 350,000 sellers exceeded $100,000 in sales in 2021, up from 140,000 in 2017. Over half of those sellers sell on Amazon.com in the United States, with the rest on one of the company’s 19 other marketplaces.

Breaking up Amazon or forcing it to let other logistics services fulfill Amazon Prime orders could undermine the convenience and fast delivery that Prime members value. Amazon previously tried allowing third-party sellers to use alternative logistics providers to send Prime-eligible products to consumers through its Seller Fulfilled Prime (SFP) program. However, the third-party sellers and their logistics network could not deliver the performance and speed expected by Prime customers. As a result, Amazon temporarily put new enrollment to the SFP program on hold. Amazon recently announced that it is opening up enrollment to SFP again in 2023, showing its commitment to meeting the needs of both merchants and shoppers.

With the FTC reported to be unwilling to accept minor changes from Amazon to address its concerns, imposing broad restrictions that dismantle Amazon’s logistics network risks severe consequences. Amazon has developed its logistics capabilities through continuous innovation to achieve ever-faster deliveries. In 2021 alone, Amazon accounted for 38 percent of all U.S. warehouse automation spending, underscoring its leadership in applying robotics and AI to transforming logistics. As a result, Amazon has continuously pushed the envelope in delivery times, offering same-day, 4-hour, and even 2-hour deliveries in some locations. Breaking up a company that has consistently pushed operational excellence would harm customers and sellers who rely on Amazon’s integrated platform and logistics services.

While vigilance against unfair competitive behavior is prudent, regulators should weigh the evidence to assess whether business practices are actually anticompetitive behavior. Amazon’s logistics innovations have tangibly benefited consumers through greater convenience, choice, and lower costs. These real gains for society should not be sacrificed based on unproven predictions of future market dynamics, such as those outlined by Lina Khan, who warns of Amazon’s potential monopolistic control over e-commerce infrastructure. Any antitrust enforcement should consider the tangible benefits Amazon provides consumers with its logistics services and the potential harm that would result from interfering with those services. Balanced oversight can foster a competitive market environment with continuous consumer-friendly advances.

Image credit: Unsplash user Ian Hutchinson

Image credit: Unsplash user Christian Wiediger

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