European Commission cracks down on Amazon, finding e-commerce giant breached anti-competition rules

Amazon-fulfillment-centre-Dandenong

Amazon’s fulfillment centre in Dandenong, Victoria. Source: Revere Agency/AAP.

An investigation by the European Commission has come to a preliminary conclusion that Amazon has breached antitrust rules in the EU by distorting competition in online retail markets.

The commission — the executive legislative branch of the European Union — found Amazon relies heavily on the non-public data of the independent sellers on its platform, using that data to benefit its own retail business, which directly competes with them.

Essentially, it has the ability to collect data from small businesses, only to use it against them.

In a statement, European Commission executive vice president Margrethe Vestager, who heads up competition policy, said dual-role platforms such as Amazon hold significant market power.

Amazon both owns the marketplace and sells its own products on it as a retailer.

Therefore, it’s important it doesn’t distort competition.

As the service provider, Amazon has access to data, such as the number of ordered and shipped products, the number of visitors to a seller’s online store, and sales performance and revenues.

The commission’s preliminary findings show that data is available to employees in Amazon’s retail business and “flow directly into the automated systems of that business”.

For example, Amazon is able to craft its own offers to directly compete with the best-selling products of other competing sellers.

“Data on the activity of third party sellers should not be used to the benefit of Amazon when it acts as a competitor to these sellers,” Vestager said in a statement.

The European Commission has also opened a second antitrust investigation, assessing whether Amazon offers preferential treatment to those sellers that use its own logistics and delivery services.

In particular, this will consider which products are offered or advertised to Amazon Prime customers through its ‘Buy Box’ campaigns.

The campaigns highlight particular sellers, and can generate significant sales for the businesses featured. The commission alleges this feature artificially favours Amazon’s own offers, or those sellers that use its distribution networks.

If this is proven, this practice breaches EU laws prohibiting “the abuse of a dominant market position”, the commission’s statement said.

“With e-commerce booming, and Amazon being the leading e-commerce platform, a fair and undistorted access to consumers online is important for all sellers,” Vestager added.

Amazon has responded, disagreeing with the preliminary findings, and saying it will continue to make efforts to ensure the commission “has an accurate understanding of the facts”.

The global tech giant added that it represents “less than 1% of the global retail market”, and suggested that there are larger retailers in every country in which it operates.

“No company cares more about small businesses or has done more to support them over the past two decades than Amazon,” the statement said.

What does this mean for Aussie SMEs?

Coming late into the Australian market in 2017, Amazon didn’t have immediate appeal to the small businesses here.

At the time, SME owners told SmartCompany they were having trouble selling products on the platform, while paying significant fees.

Dick Smith even suggested Amazon Australia would “slowly strangle” local businesses.

However, Jana Bowden, associate professor at Macquarie Business School, tells SmartCompany that three years later, Amazon is a key platform for Aussie retailers, and a dominant player in the space. It’s not going away any time soon, she says.

Amazon “has an almost unsurpassable reach and penetration of the Australian market,” Bowden says.

Bowden sees this particular Amazon crackdown as being more about the use of big data than about retail competition. The tech behemoth has access to sensitive business details of some 800,000 sellers in the EU alone, she notes.

“That information gives Amazon detailed granular insights into the sales of 1 billion products.

“This isn’t the kind of data that your regular bricks-and-mortar retailer can get their hands on, and that’s where the potential inequality lies. That’s market knowledge and market knowledge is power,” she notes.

“The question becomes one of fairness and equity. Is Amazon allowing vendors a fair go within its ecosystem?”

This dispute is a classic David vs Goliath situation, Bowden says. There’s no way small businesses have the investment power of opportunity to source that kind of market information.

And, this case may well kick-off a global conversation about what she calls “dominant gatekeeper-monopolistic platforms”.

The final outcome of this case may well ultimately have implications in Australia, and all over the world.

“It’s raised issues around whether as powerful platforms their business actions are supporting sellers or in fact driving them out of the market.”

So, while Aussie businesses may not be ready to jump shop from Amazon just yet, Bowden suggests they should also focus on building their own e-commerce distribution channels.

The mass shift to online, driven by the COVID-19 pandemic and lockdown measures, means an online presence is important for Aussie retailers “in order to secure their future and their independent viability”, she says.

“Retailing is not just about selling a transactional product. It’s about selling the retailer, the brand, the experience — and through that building brand preference, differentiation and identity loyalty.”

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