On March 10, 2019, the Italian Competition Authority (the AGCM or “ICA”) began investigations into Amazon’s companies (Service Europe S.à.r.l., Amazon Europe Core S.à.r.l., Amazon EU S.à.r.l., Amazon Italia Services S.r.l. and Amazon Italia Logistica S.r.l., hereinafter collectively “Amazon”) to ascertain whether it had abused its dominant position in breach of Section 102 of the Treaty on the Functioning of the European Union (TFEU).
In line with parallel investigations currently conducted by the European Commission, as well as by other national competition authorities across the EU, the ICA alleged that Amazon is dominant in the national market for intermediation services on generalist e-commerce platforms (i.e. marketplaces that sell full ranges of products, hereinafter “generalist internet marketplaces”) and that it is abusing its market power to extend such dominant position to the complementary (national) market for e-commerce fulfillment and logistic services (which includes a whole set of customer support and product management services in addition to mere storage, warehousing and shipping, hereinafter “e-commerce logistics services”), where Amazon is also active through its service called Fulfillment by Amazon (FBA). More specifically, according to the ICA’s preliminary allegations, Amazon allegedly only granted sellers affiliated with the Amazon’s FBA services advantages in terms of offer visibility and sales improvement on the Amazon marketplace, in comparison to sellers that are not customers of Amazon’s FBA services and irrespective, to a certain extent, of the merits of the products.
In addition to the possibility of selling on its own marketplace, Amazon offers vendors a range of additional services, including the FBA services. If a vendor subscribes to this service, it automatically delegates to Amazon the entire management of orders (e.g., product storage, packaging and shipping to the end customer, plus certain pre- and post- sales support services). Where such e-commerce logistics services are managed by Amazon, the visibility and positioning or rankings in search results of the vendors’ offers are better placed than those obtained if the vendors use their own or third-party logistics and fulfillment services, for several reasons, including: (i) the products are classified as Prime in the search bar and are therefore prominently displayed in search results or have reserved access to the results of the advanced search tool; (ii) sellers get more positive feedback that improves the ranking of their performance and can remove negative feedback, which also improves rankings and positioning in search results; and (iii) sellers’ products are more likely to be selected for the “buy box”, allowing consumers to buy a searched product with one click, irrespective, to a certain extent, of the better performance or price of competing sellers for the same product.
The impact of the advantages granted by Amazon to sellers using its FBA services, as described above, would be far from marginal. For example, the ICA refers to studies that show that (i) 70% of consumers check, and subsequently buy, only the offers shown on the first page of the search results, and (ii) the products on the first page account for 81% of the sales for a given search (an effect similar to that of appearing on the first page of Google searches, as expressly mentioned by the ICA). Hence, according to the ICA’s preliminary finding, joining Amazon’s FBA services can be an effective solution to improve sales if the seller does not achieve positive performances on Amazon.com, even if the price or quality (i.e., the merits) of the products are worse than those of competing vendors that do not use FBA services.
In consideration of the fact that the improved performance of vendors affiliated with FBA is not due to competition based on merit, but rather on Amazon’s ability to discriminate against sellers on the mere basis of whether they purchase its own e-commerce logistics services, the ICA alleged that the conduct may constitute abusive self-preferencing, capable not only of extending Amazon’s market power to the complementary market for e-commerce logistic services, but also of increasing its dominance in the market for generalist internet marketplaces by raising the cost for multihoming vendors in competing marketplaces, thus strengthening entry barriers for competitors by enhancing direct and indirect network effects (which would be scaled up by greater availability of big data).
The time limit for the investigation is currently set for April 15, 2020. The ICA’s decision is available here.