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Amazon's harms to small businesses get Senate airing

Amazon's business practices are facing scrutiny not just in the U.S., but also around the globe. Amazon was hit with a record $1.28 billion antitrust fine this week.

Amazon is facing a tough week. Karl Racine, Attorney General of the District of Columbia, renewed criticisms at a Senate subcommittee hearing this week that Amazon harms small businesses using its platform. On top of that, Amazon received a record antitrust fine from Italy.

Italian antitrust authorities hit Amazon with the $1.28 billion fine Thursday for abusing its dominant market position. According to the Italian antitrust authority, Amazon promotes its own logistics service, Fulfillment by Amazon, among the third-party sellers on its platform to the detriment of its competitors. By promoting its own logistics service, Amazon has benefitted from better visibility and potential sales on its own platform, the authority said. The authority wants Amazon to take corrective action.

Amazon is also facing growing scrutiny from regulators in the U.S. In May, Racine filed a lawsuit against Amazon alleging that it maintains dominant control of online retail by using contract agreements to stop third-party sellers from promoting and selling their products on other platforms at cheaper prices.

Racine said Amazon controls between 50% to 70% of the online retail market, and its impact on small businesses is formidable.

How Amazon harms small businesses

Racine spoke about how Amazon harms small businesses during Tuesday's U.S. Senate Subcommittee on Fiscal Responsibility and Economic Growth hearing. He said Congress first tried to address the issue with Amazon's third-party contracts in 2019.

To put regulators at ease, Amazon claimed it had removed a clause in its agreement with third-party sellers prohibiting them from offering their goods for lower prices on other platforms, according to Racine.

However, Racine said Amazon "deceived Congress and consumers" with a bait-and-switch tactic by replacing its initial terms with different language that has the "same illegal impact."

"Amazon is costing all of us more money by controlling prices across the entire electronic mall," Racine told lawmakers. "When companies like Amazon unfairly and unlawfully increase the prices on all of us, stifle competition and take advantage of consumers, the law must step in and say, 'Enough is enough.'"

Racine alleged that while Amazon hurts its third-party independent sellers, it also hurts first-party sellers, from which Amazon purchases products and for which it handles pricing and sales. He said Amazon uses data from first-party sellers to create competitive products.

Amazon can't win enough without cheating. That's why we're suing them.
Karl RacineAttorney General, Washington, D.C.

"Amazon can't win enough without cheating. That's why we're suing them," Racine said. Apple faces a similar allegation.

At a separate antitrust event Wednesday, Stacy Mitchell, co-director of research and advocacy organization Institute for Local Self-Reliance, said Amazon applied this tactic described by Racine to Fortem, a firm that designs a popular organizer for car trunks.

Citing an investigation by The Wall Street Journal, Mitchell said Amazon employees spent months gathering data on Fortem's trunk organizer product before unveiling an identical product.

"If you sell on Amazon, you'll be handing over the fate of your business -- your livelihood -- to your biggest, most aggressive enemy," she said. Mitchell was speaking during a debate sponsored by Intelligence Squared U.S., a nonpartisan policy group.

Amazon a 'tollbooth keeper'

At the subcommittee hearing, Racine said small businesses operating on Amazon's platform face not only strict contractual agreements and the risk of their own products being copied, but also hefty fees.

Between 2014 and 2020, Racine said Amazon's revenue from third-party seller fees and charges grew from $11.75 billion to more than $80 billion. In 2021, Amazon is estimated to reap more than $121 billion in fees from third-party sellers, he said.

"Look at it as a tollbooth keeper," Racine said. "If the road only leads to the tollbooth, the tollbooth keeper can raise those prices and you, as the driver, have no choice but to pay whatever they're asking to try and get down that road. We think that's illegal. We're going to make law in the courts and look forward to helping with respect to legislation."

At the Intelligence Squared event, Mitchell also described Amazon as a "monopoly tollbooth" for small businesses, sitting between them and their customers. Mitchell said that seven years ago, Amazon took $19 in fees for every $100 in sales a business made on Amazon's site; today, it's up to $34.

"The internet once opened vast new avenues for small businesses to succeed," she said. "But because of the failures of U.S. antitrust policy, those avenues have been cut off by Amazon's stranglehold."

Former Amazon employee defends company

Kunal Chopra, a former Amazon general manager, spoke during the Intelligence Squared debate in favor of Amazon.

Chopra, now CEO at Kaspien, a third-party seller on e-commerce sites including Amazon, said Amazon provides scale for small businesses, as well as global opportunities. He said Amazon shoulders the task of managing payment processing, shipping and other tasks small businesses might not be able to afford.

"For the first time in history, a small store at the corner of the street or an entrepreneur from home can access a global audience and infrastructure that can support global scale," he said.

Chopra said Amazon has also leveled the playing field and "democratized retail."

"Think about the local mall where most people shop. How many small businesses do you think can afford stores there? Most of that coveted space has gone to big-name brands that can afford the rent," he said. "Small businesses can [now] compete on the same platform as some of the biggest brands in the world."

Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.

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