On Wednesday, July 29, Amazon CEO and Founder Jeff Bezos, along with the CEOs of Apple, Facebook, and Google, testified before the House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law as part of the subcommittee’s ongoing investigation into competition in the digital marketplace.
In the aftermath of the hearing, Bloomberg reported on Monday, August 3, that attorneys general from California and New York are partnering with the Federal Trade Commission (FTC) to investigate Amazon’s online marketplace. The attorneys general and FTC are expected to work together in upcoming weeks to interview witnesses related to the investigation.
Amazon released its second quarter earnings on July 30, the day after the hearing. Notably, the report revealed Amazon’s sales are up 40 percent year over year, underscoring Amazon’s monopolistic power in the middle of a global pandemic when millions of businesses are struggling for survival.
The nearly five and a half hour hearing marked Bezos’ first appearance before Congress. ABA sent a letter to Congressman David Cicilline, chair of the House Antitrust Subcommittee, on July 22 in advance of the hearing, urging for a comprehensive investigation into Amazon’s anticompetitive behavior.
In his opening statement to the committee on July 29, Bezos repeatedly tied Amazon’s success to “the success of the thousands of small and medium-sized businesses that also sell their products in Amazon’s stores.” Bezos continued, saying that the decision to allow third-party sellers to sell on Amazon was not a zero-sum game. “The whole pie [grew], third-party sellers did very well and are growing fast, and that has been great for customers and for Amazon.”
Following his opening statement, Bezos escaped questioning from committee members for nearly the first two hours before finally receiving harsh scrutiny from Congresswoman Pramila Jayapal (D-WA) about Amazon’s use of third-party seller data.
Bezos’s participation in the antitrust hearing, which was originally scheduled for July 27, was in part driven by a report from the Wall Street Journal in April 2020 alleging Amazon uses sensitive business information from individual third-party sellers on its platform to inform the development of Amazon’s competing products. If true, the allegations in the Wall Street Journal directly contradict statements made by Amazon in sworn written and oral testimony at a July 2019 House Judiciary Committee hearing when Amazon Associate General Counsel Nate Sutton said, “We do not use any seller data to compete with them.”
In response to the report, members of the House Judiciary Committee called on Bezos to testify in front of the committee in a bipartisan letter to Amazon and Bezos in early May. After initially saying it would not send Bezos but rather “the appropriate executive” to testify, Amazon reversed course and said it was willing to make Bezos available to testify at a hearing with other big tech CEOs.
In her questioning, Congresswoman Jayapal asked if Amazon uses data on third-party sellers in its business decisions.
Bezos responded, “I can’t answer that question yes or no.” He admitted that, while Amazon has a policy prohibiting the use of third-party seller data to aid Amazon’s private label business, he “can’t guarantee...that the policy has never been violated.”
Bezos continued that Amazon has launched an internal investigation into the allegations made in the aforementioned Wall Street Journal report. “I’m not yet satisfied that we have gotten to the bottom of it, and we’ll keep looking at it,” he said.
“I’ll take that as you’re not denying it,” Jayapal responded. She continued, “So you might allow third-party sellers onto your platform, but if you’re continuously monitoring the data to make sure that they’re never going to get big enough that they can compete with you, that is the concern that the committee has.”
Congressman David Cicilline (D-RI) also directed questions at Bezos, saying, “Amazon controls as much as 75 percent of all online marketplace sales. Isn’t it true that small businesses have no real option but to rely on Amazon to connect with customers and make online sales?”
Bezos asserted that “there are a lot of options,” but “Amazon is the best one.”
“We have heard so many heartbreaking stories of small businesses who sunk significant time and resources into building a business and selling on Amazon only to have Amazon poach their best items and drive them out of business,” Cicilline noted. “Isn’t it an inherent conflict of interest for Amazon to produce and sell products on its platform that compete directly with third-party sellers particularly [when] you, Amazon, set the rules of the game?”
In response, Bezos argued that “consumers are the ones ultimately making the decision.”
Bezos also received scrutiny from Congresswoman Mary Gay Scanlon (D-PA) about Amazon’s business practice of eliminating its competitors. Scanlon used Diapers.com as a case study. Amazon bought Diapers.com’s parent company Quidsi for approximately $500 million in 2010 before shutting it down in 2017.
Before it acquired Diapers.com, Amazon intentionally cut prices on Amazon’s diaper products, losing $200 million in one month alone, in order to drive Diapers.com out of business. “How much was Amazon willing to lose to undermine Diapers.com?” Scanlon asked.
“I don’t know the direct answer to your question. This is going back in time 10 or 11 years or so,” Bezos commented. “The idea of using diapers and products like that to attract new customers who have new families is a very traditional idea.”
After noting that Amazon raised prices on diaper products following its acquisition of Diapers.com, Scanlon went on to press Bezos about a time he allegedly instructed Amazon employees to approach discussions with business partners like the “way a cheetah would pursue a sickly gazelle.”
“I cannot comment on that because I don’t remember it. What I can tell you is that we are very, very focused on the customer,” Bezos responded.
As part of her questioning, Congresswoman Lucy McBath (D-GA) played an audio clip of a textbook bookseller on Amazon describing her experience as a third-party seller on the platform.
“We were a top bookseller on Amazon.com...As we grew, we were shrinking Amazon’s market share in the textbooks category. So now, in retaliation, Amazon started restricting us from selling,” the third-party seller said. “They started with a few titles in early 2019 and within six months Amazon systematically blocked us from selling the full textbook category. We haven’t sold a single book from the past 10 months.”
According to the audio clip, Amazon did not provide the seller with any advance notice that her business would be restricted. McBath added that the seller sent more than 500 separate communications to Amazon, including to Bezos himself, over the past year. “There was not a single meaningful response.”
Bezos said the audio clip “surprised” him and claimed, “It’s not the systematic approach that we take, I can assure you.” He continued, “I’m not even sure what’s going on in that anecdote.” Bezos also expressed a desire to reach out to the Amazon seller to rectify the situation.
“I think, though, that you’re missing the point. This is not just about one business. I’m concerned that this is a pattern of behavior, and basically this pattern of behavior has to change.” McBath responded. “What do you have to say to the small businesses who are talking to Congress because you simply won’t listen to them?”
“Well I’d say that’s not acceptable. If we’re not listening to you, I’m not happy about that at all,” said Bezos, adding, “I do not think that’s systematically what’s going on...Third-party sellers in aggregate are doing extremely well on Amazon.”
Stacy Mitchell, co-director of the Institute for Local Self-Reliance, commented in response on Twitter, “Amazon ignores the emails of sellers as a matter of policy! Amazon makes sellers pay up to $5,000 a month in order to be able to actually talk to an Amazon employee. Otherwise, they can email a wall.”
McBath also drew on information Amazon cited in documents it submitted to the committee when noting that third-party sellers do not have many viable alternatives to Amazon; Amazon has nearly seven times the market share of its closest e-commerce competitor.
Following multiple rounds of questioning by committee members, Cicilline concluded the hearing, saying, “This hearing has made one fact clear to me — these companies as they exist today have monopoly power. Some need to be broken up; all need to be properly regulated and held accountable. We need to ensure the antitrust laws first written more than a century ago work in the digital age.”
“As a great American, Supreme Court Justice Louis Brandeis, once said, ‘We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both,’” said Cicilline.