How Amazon Keeps the Little Guys Little by@linakhantakesamazon
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How Amazon Keeps the Little Guys Little

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Amazon's requirement for FBA to gain Prime eligibility excludes independent fulfillment providers from competing for Prime orders, reducing their growth and keeping the fulfillment market small. Amazon's dominance in this area stifles competition among marketplaces and superstores, while locking in Prime-eligible volumes for itself.

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FTC v. Amazon Court Filing, retrieved on Sep 26, 2023, is part of HackerNoon’s Legal PDF Series. You can jump to any part in this filing here. This is part 49 of 80.

b. Forcing sellers to use FBA to obtain Prime eligibility impedes competition and the growth of independent fulfillment providers

375. Amazon’s coercive conduct that forces sellers to use FBA forecloses significant volumes of business from independent fulfillment providers that could facilitate seller multihoming across multiple online marketplaces and superstores.

376. By forcing sellers to purchase FBA to ensure that their products are Prime eligible, Amazon artificially walls off a massive volume of Prime-eligible orders from competition, instead funneling it solely into FBA. In so doing, Amazon harms competition in the market for online retail fulfillment services. Amazon’s foreclosure of competition in the online retail fulfillment services market helps maintain Amazon’s monopolies in the online marketplace services and online superstore markets.

377. Online retail fulfillment services include storing, picking (i.e., retrieving from storage), packaging, and preparing items purchased by shoppers online for delivery. Sellers purchase online retail fulfillment services to complete online orders placed by shoppers.

378. Online retail fulfillment services are discrete and separate from online marketplace services. Online marketplace services enable sellers to offer items for sale to online shoppers, whereas online retail fulfillment services are focused on physically storing and preparing items for delivery to shoppers.

379. These services are offered to sellers at distinct prices and pricing structures compared to online marketplace services. For example, Amazon charges sellers that use its “Professional” plan to access its Marketplace on a monthly basis whether or not any sale is made. But Amazon’s fulfillment fees are based on the item’s size and weight, as well as how long Amazon had to store it before fulfilling the order.

380. Demand for online retail fulfillment services is separate from demand for online marketplace services. Sellers often choose to purchase these services separately. And online retail fulfillment services are frequently provided by distinct suppliers.

381. Providers of online retail fulfillment services must have fulfillment facilities in the United States to timely and reliably serve U.S.-based shoppers. Online retail fulfillment services providers that do not have U.S. fulfillment facilities generally are not substitutable for U.S. online retail fulfillment providers.

382. Amazon, through FBA, is by far the largest U.S. supplier of online retail fulfillment services. In 2020, Amazon fulfilled orders for over (redacted) items using more than 200 U.S. fulfillment centers.

383. As the sheer size of Amazon’s fulfillment operations suggests, the online retail fulfillment services market benefits from economies of scale. Online retail fulfillment service providers can ship products faster and cheaper when they can place products closer to the endconsumer by having a large network of fulfillment centers. These speed and cost savings may be shared with shoppers via faster deliveries and cheaper products.

384. Amazon recognizes that (redacted) Amazon measured (redacted)

385. Independent fulfillment providers, too, benefit from large fulfillment volumes that can help them scale and reduce costs. But by tying Prime eligibility to FBA use, Amazon effectively removes the opportunity for online fulfillment providers to compete for Prime order volumes—locking in those volumes for FBA alone.

386. This foreclosure denies independent fulfillment providers an important source of scale that may contribute to their growth, allow them to take advantage of volume-based cost savings, and help them build the infrastructure necessary to efficiently fulfill orders for products sold online.

387. Unlike Amazon’s FBA, independent fulfillment providers are agnostic about the channel from which sales originate. These independent logistics firms let sellers offer products seamlessly across multiple marketplaces and online superstores.

388. In contrast to independent fulfillment providers, Amazon’s FBA service only fulfills orders placed on Amazon’s Marketplace. Sellers cannot use FBA to fulfill orders off Amazon. To fulfill orders off Amazon, sellers can pay an additional fee for a separate Amazon fulfillment service. (Redacted)

389. In a competitive world, the growth of independent fulfillment providers could erode Amazon’s monopoly power in the relevant markets. Successful independent fulfillment providers could foster competition among marketplaces by breaking down the barrier to efficiently selling across marketplaces. That, in turn, could open up rival online superstores’ and online marketplace services providers’ ability to attract sellers’ business and product selection.

390. Amazon’s former head of Global Fulfillment Services internally voiced (Redacted) Another executive (redacted)

391. Following conversations with sellers, other Amazon executives confirmed (redacted) Amazon’s former head of Global Fulfillment Services (redacted)

392. Prime-eligible fulfillment volumes are significant. In 2020, FBA fulfilled more than (redacted) units, which, if shipped individually, would account for nearly (redacted) boxes for every person in the United States. Conditioning Prime eligibility on FBA enrollment has locked in massive volumes of shipments exclusively to Amazon, allowing it to scale its fulfillment network into the behemoth it is today.

393. Independent fulfillment providers’ operations remain far smaller than FBA. These providers fulfill orders for only a few thousand, and often only a few hundred, sellers. Had independent fulfillment providers been able to compete for Amazon order volumes, they could have won significant business from Amazon’s third-party sellers.

394. Amazon ensures that independent fulfillment providers will stay artificially small by requiring that sellers who want Prime-eligible products use FBA for fulfillment. As a result, Amazon makes some providers’ services comparatively more expensive because they are unable to take full advantage of the economies of scale. Amazon locks in the scale for itself through tying Prime eligibility to use of FBA, and sellers have fewer choices for fulfillment providers.

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This court case 2:23-cv-01495 retrieved on October 2, 2023, from is part of the public domain. The court-created documents are works of the federal government, and under copyright law, are automatically placed in the public domain and may be shared without legal restriction.