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Amazon faces FTC antitrust suit alleging anticompetitive practices

Federal Trade Commission (FTC) officials have filed an antitrust lawsuit against online retailer Amazon (AMZN), citing the marketplace's anticompetitive practices of promoting its own products over third-party sellers.

Yahoo Finance's Dan Howley and Alexis Keenan break down the claims made by the FTC and 17 states and how this could impact Amazon's status as an "online superstore."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JULIE HYMAN: Amazon is facing a set of antitrust charges from the Federal Trade Commission, the FTC and 17 state attorneys general suing the online retail giant, alleging Amazon is using anticompetitive business practices. Here with the legal breakdown and what this means for the future of the company we have Yahoo Finance's Alexis Keenan and Dan Howley. Alexis, let's start with you and the exact content here of the government charges against Amazon.

ALEXIS KEENAN: Sure, so the FTC and these 17 states, they're going after Amazon.com, so the retail giant that we all know and is overly popular. So they're saying that the company is operating an illegal monopoly in two different markets, and the two markets that they name-- and this is going to be a hurdle for the FTC to prove up these markets-- one is the online superstore market. That's what they call it. This is where the customers come to shop. And also the online marketplace services market. That's where the sellers go to list and sell their products.

So what the government wants out of this-- the two-- the governments, is an injunction. They're asking a judge for an injunction. So they're not looking to break up the company. They're saying that we want to stop what they call interlocking anticompetitive strategies by Amazon that's harming both consumers they say as well as sellers.

And here are five different practices. This is at the heart of the complaint. This is what they say are the illegal activities by Amazon. One, they say the company buries products that are offered elsewhere online at lower prices. Second, they say that the company replaces relevant search results for products with advertisements.

Next, they say that the company biases search results to favor their own brand products on the superstore. And they also say that they condition seller Prime eligibility. So, right, the ability for a seller to get that product to you under Prime conditions, those generally two days. They say that that's conditioned on the seller also signing up for Amazon's fulfillment services for packing and shipping the product. And finally, they allege that the company is charging unfair seller item as well as advertising fees that are racking up to as much as sometimes 50% of a seller's revenue for a particular sale.

So in response to all of this, the company is saying through their general counsel David Zapolsky-- he says that a win for the FTC here would mean reduced choice, higher prices, slower delivery. He says the practices that the FTC is challenging have helped to spur competition and innovation across the retail industry and have produced greater selection, lower prices, and faster delivery speeds for Amazon customers and also greater opportunity for the businesses that sell on its store.

So of course, Amazon being the centerpiece of FTC chair Lina Khan's Yale Law School Law Journal article that has become widely known. It's called the "Amazon Antitrust Paradox." And at the heart of that, she alleges that the modern antitrust laws don't really-- aren't designed well enough in order to handle violations in the big tech industry because they're just too focused on price. [? Guy? ?]

- So, Alexis, thank you for that. And switching to you, Dan, what is it going to look like for Amazon if the company has to change its practices that the FTC is claiming to be anticompetitive here?

DAN HOWLEY: Yeah, it really depends, right? If they do end up getting everything they want, the FTC that is, which, you know, as Alexis said, could be a long shot, we could see big changes to the way the company operates its Prime service because it wouldn't be able to necessarily charge the vendors that sell on its site as they do. Maybe they'll have to pull back on the offerings through Prime, whether that's the same-day or next-day delivery, whether that's including things like Video and Music in the Prime service.

You know, they specifically take aim at the fact that Amazon requires its seller-- requires sellers to use its fulfillment services to be a part of Prime, and so this could really kind of lead into some longer term issues for Amazon and its overall business. And so we really don't know necessarily how it's going to shake out at this point. But if it does have to rewrite the rules of some of its Prime offering, that's a big deal. You know, they rely on Prime for a good deal of revenue, and it gets consumers to continually come back to Amazon to make purchases.

The other thing is the idea that they preference their own goods compared to those of sellers on their site. Well, that could mean that we'll see a drop in Amazon products being sold. I've personally been using Prime to purchase different things like wires and whatnot that are relatively inexpensive, and I would previously see Amazon stuff pop up first. Now I'm seeing less of that.

I'm seeing them show up further down the line, so it could be that Amazon's making changes already in the background or did in preparation of this suit. I can't say for sure, but that's just my anecdotal experience. But yeah, we could end up having to see some big changes to its marquee service.

JULIE HYMAN: Yeah, maybe some preemptive moves on their part. Alexis, just quickly here, what can we expect now in terms of a timeline now that this suit has been filed?

ALEXIS KEENAN: Yeah, so first off, there's a lot of redactions in this complaint, and so we're not really getting to see all of what backs up these arguments. And Amazon has 14 days in order to go in and justify to the judge why these parts of the complaint should remain under seal, so that's the first step. Then they'll have an opportunity to file an official response.

But look, this type of lawsuit, because it's dealing with these nascent markets, right, none of these courts have ever considered whether there's a monopoly in the superstore market or the market for marketplace services market. So that's really the first step, and it could take well over a year for this all to shake out because the very first steps in this litigation will be Amazon trying to or the FTC rather trying to prove that these markets actually exist in the first place and then, on top of it, that there are monopolistic, illegal violations going on.

JULIE HYMAN: Team coverage from our Alexis Keenan and Dan Howley. Thanks so much, guys.