Amazon's revenue from third-party services, not including advertising, has grown...

Amazon's revenue from third-party services, not including advertising, has grown 883% since 2015. Credit: Bloomberg/Gabby Jones

Finally, it's showtime. Ever since Joe Biden made the bold decision in 2021 to bring in Lina Khan, a 32-year-old law scholar at the time, to lead the Federal Trade Commission, it was known that would be in her sights. The antitrust case her agency filed on Tuesday, which targets the company's top-to-bottom control of e-commerce, is the culmination of a yearslong investigation. Or, as Khan's many critics would have it: a yearslong vendetta.

The case is the fourth brought by the FTC against Amazon this year and is backed by a bipartisan coalition of 17 states. Whereas those earlier lawsuits have targeted narrow business practices — such as the ways in which Amazon boosted sign-ups to its Prime membership program — this latest effort goes for the heart of the business.

It builds on an argument that Khan first made in the Yale Law Journal in 2017, that Amazon's simultaneous role as logistics provider, store owner and store seller gives it the levers to squeeze sellers to pay more and more while locking out any potential competitors. "With its amassed power across both the online superstore market and online marketplace services market," the FTC said Tuesday, "Amazon extracts enormous monopoly rents from everyone within its reach."

Some view this case as Khan's Hail Mary, contending that after some prominent losses — most significantly her effort to block Microsoft from acquiring Activision Blizzard — she needs a victory to shore up her reputation and that of her agency. Reports of discontent among her rank-and-file staff members — employee morale at the agency has plummeted, according to government surveys — has energized critics who say Khan has pushed a progressive antitrust agenda grounded in activism, not law. Conservative media has swarmed her. The Wall Street Journal described her as having "artificial intelligence" in just one of the many editorials attacking her record.

Another way of looking at it might be: This is what happens when you're turning upside-down the establishment thinking on fair competition and upsetting a status quo that has allowed for rampant consolidation across multiple industries for decades. In response to her efforts against Amazon, Khan's critics attack her — and seek to have her step aside — because they can't adequately attack her argument that the e-commerce titan's dominant position allows it to exert inordinate control. But Khan's test, and it's a big one, is to prove in court that this hurts consumers' wallets.

To understand the FTC's case, it's helpful to know how Amazon's store truly works. For each product, a number of sellers can fulfill the order. Sometimes that will be Amazon itself, though mostly not — around 60% of units sold on Amazon come from third parties. Amazon wants these third parties to compete with one another, so even though dozens of sellers may be offering the same item, the so-called Buy Box on the right hand side of the screen — if the shopper is using a desktop browser — displays just one seller at a time. The decision on which one gets the coveted spot rests with an algorithm Amazon says benefits consumers, and it probably does: It appears to reward sellers with the lowest price, the shortest delivery time and the best customer feedback.

That sounds like a good and fair system, but here's where Amazon turns the screw. The Buy Box prioritizes sellers that store their goods in Amazon warehouses and use Amazon trucks to deliver their products. The fees to do so have increased by an estimated 30% since 2020. On top of that, being seen at all on Amazon's store increasingly means paying for better placements in "sponsored" slots — something consumers have certainly noticed if they have shopped with Amazon recently. Taking all this into account, market research firm Marketplace Pulse estimates around 50% of a seller's revenue goes neatly into Amazon's pocket. Amazon's revenue from third-party services, not including advertising, has grown 883% since 2015.

Khan's argument is that Amazon can only get away with this because third-party sellers have little choice given Amazon's extreme dominance of e-commerce marketplaces — around 70% in the U.S., according to Insider Intelligence, a research group. Amazon prefers the much-less-threatening data point of around 4% of all retail. Amazon contends that sellers are free to charge what they want and deliver the goods (mostly) however they see fit. But, of course, as just explained, deviating even slightly from Amazon's preferred choices means almost certainly losing the Buy Box, the difference between being on the shelf or hidden in the back.

Still, why should consumers care, if the result of this cutthroat behavior means prices are low and delivery speeds are quick? The judge in this case will certainly be asking that. It's most likely the biggest hurdle that the FTC will need to clear, and it gets to the core of Khan's philosophy on antitrust enforcement reform, which doesn't just assess pricing when considering consumer harm but impacts on the wider market.

In this case, Khan argues that while Amazon claims to not have a "most-favored nation" policy, which would explicitly prohibit sellers from selling their product cheaper elsewhere, it does punish sellers that offer cheaper prices elsewhere by denying them the Buy Box — which is a most-favored nation policy, only in dark glasses and a wig. The result is that even though sellers might be able to sell products on competing marketplaces for less, they are heavily incentivized to keep prices artificially high everywhere for fear of losing the Buy Box on Amazon's store. That's how consumers lose. At the same time, any potential Amazon competitors find it harder to achieve a critical mass of customers by running discounting events or exclusive deals.

So how can consumers start to win? If Khan can prevail — which will be a challenge, given judges' assessments of her modern interpretations so far — attention will turn to suitable remedies. The lawsuit calls for a "permanent injunction," without detailing what that practically would mean. In a media briefing on Tuesday, Khan would also not be pinned down on whether her ultimate goal is to break up Amazon.

One blunt force option might be to make Amazon spin out its logistics division, forcing it to compete on the same terms as other delivery companies. Another might be to place a cap on seller fees or prohibit the disqualification of sellers from the Buy Box if they offer a product cheaper elsewhere. What Khan must ultimately do is jam a stick into Jeff Bezos's famed "flywheel," which has allowed Amazon to grow so big so fast. Finding a solution will be fraught and time-consuming — the appeals process, if it came to that, would likely outlast Khan's tenure as FTC chair.

Amazon is already characterizing any remedy as horridly anti-consumer. "If the FTC gets its way," it said in a statement on Tuesday, "the result would be fewer products to choose from, higher prices, slower deliveries for consumers, and reduced options for small businesses — the opposite of what antitrust law is designed to do."

Amazon will waste no time in trying to convince its millions of customers that Khan is determined to make everyone's shopping cart more expensive. They shouldn't buy it. Like other Big Tech companies, Amazon is denying others the kind of competitive landscape that made its own existence possible. The judge in this case should be aware of a crucial difference between others Khan has brought before the courts. Her argument against Amazon, refined over many years, doesn't rely on a theoretical future harm, but on market abuses clearly taking place today.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners. Dave Lee is Bloomberg Opinion's U.S. technology columnist. Previously, he was a San Francisco-based correspondent at the Financial Times and BBC News.

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