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9 Reasons Labor Unions Think Amazon Deserves FTC Scrutiny

By Dan Caplinger – Feb 28, 2020 at 11:55AM

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A new petition asks the trade regulator to look more closely at the e-commerce giant. (AMZN 4.18%) has been one of the most successful businesses of the last 20 years, going from a small online bookseller to become a dominant player in e-commerce and cloud computing. Amazon's success has been so impressive that many believe that the company now has more power than it should -- and labor unions are expressing their displeasure with the company.

A group of labor unions that together include more than 5 million members recently filed a petition with the Federal Trade Commission that asked the regulator to take a closer look at Amazon. In the petition, the unions cited a number of arguments justifying further investigation. Below, we'll look more closely at the assertions and allegations that the petition made.

1. Amazon discourages third-party sellers from charging lower prices elsewhere

The labor unions assert that Amazon controls prices on its e-commerce platform by using what it calls most-favored-nation restrictions that essentially guarantee that the price offered on Amazon is the lowest available. This appears to benefit consumers, but it imposes burdens on merchants who have to pay Amazon fees in order to gain access to its marketplace.

Rows of Amazon Prime blue vans in a parking lot.

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2. Amazon's search engine seems to favor itself and unrelated services

Amazon doesn't disclose the algorithm it uses to generate search results, but the petition notes that search results seem to benefit its own interests. One way in which it might do so is in giving preferred treatment to retailers who sign up for the Fulfillment by Amazon logistics service, which generates more revenue for the company.

3. Amazon seems to use profit in determining search rankings

More broadly, the petition asserts that the search engine seems to favor more profitable results over more relevant ones. With moves like switching default search terms to sort by featured items rather than relevance, Amazon can nudge users toward higher-profit items.

4. Amazon charges more for fulfillment services if you don't use its marketplace

When merchants use Amazon's fulfillment services for sales on other marketplace platforms, according to the petition, they tend to pay a lot more. Yet doing so is necessary in order to get access to Amazon Prime members, who tend not to want to pay for shipping costs that other platforms charge.

5. Amazon uses data collected from its platform to compete against merchants

Amazon knows which products sell well, and that can inform its own strategies for deciding whether to manufacture competing private-label products of its own. Again, by using features of its platform such as default settings, Amazon can position its goods to have a competitive advantage over third-party merchants once it finds a profitable opportunity.

6. Amazon Web Services also bars users from selling products elsewhere at lower prices

Many of the same allegations applying to the e-commerce side of Amazon's business also get mentioned in the petition about its Amazon Web Services cloud computing division. By forcing sellers of software to offer their lowest prices on AWS, Amazon drives more business to the platform.

7. Amazon can give preferential search treatment to its own software products over open-source alternatives

Some open-source software developers have argued that Amazon seems to create its own proprietary software that mimics their own software products. Once it does so, Amazon can then potentially position its own software more favorably in search results.

8. Amazon indirectly sets wages in many of its markets

Amazon tends to bring on independent contractors for its delivery routes. The petition notes that most of these contractors rely on Amazon for substantially all of their business, and the amount they pay amounts to wage-setting in that it's intended to cover both delivery vehicle-related costs and take-home pay for the driver.

9. Amazon may depress wages in certain markets

Among municipalities, Amazon tends to be a coveted employer. Yet in many key areas where Amazon has established major operations, average wages for warehousing and storage-related employment have fallen sharply. The petition notes examples in New Jersey, South Carolina, and Virginia as cases in which average wages dropped, and it alleges that Amazon deliberately chooses areas where local economies are weak and are therefore susceptible to pressuring workers more effectively.

Will anything come of it?

Amazon has faced potential antitrust scrutiny for a long time. It's possible that the labor unions' allegations and petition will put some additional fuel on the fire against the e-commerce giant, but it's far from clear whether there'll be any lasting response from regulators or the federal government to address union concerns.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.

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