Zulily Antitrust Complaint Accuses Amazon of ‘Monopoly Power Abuses’

Amazon is the world’s largest online marketplace, “but it has achieved that distinction, and maintains it, through anticompetitive conduct that destroys its competitors and raises prices for consumers everywhere,” alleged online retailer Zulily in an antitrust complaint Monday (docket 2:23-cv-01900) in U.S. District Court for Western Washington in Seattle.

Zulily “is one of Amazon’s victims,” said its complaint. The FTC’s Sept. 26 antitrust lawsuit against Amazon (see 2310170057) alleges that since at least 2019, Amazon “specifically targeted Zulily as an emerging online superstore,” it said. The FTC alleges that Amazon couldn’t “tolerate” Zulily’s primary strategy to offer consumers the lowest price online or its displaying Amazon’s prices next to Zulily’s “to show consumers that Zulily’s were better,” it said.

But rather than compete on the merits, Amazon set out instead to destroy Zulily by coercing third-party retailers and wholesale suppliers to agree to “artificially raise Zulily prices at or above Amazon’s, and to punish any sellers who cheated,” said the complaint. For many sellers, these punishments, if carried out, “threatened their very survival,” it said.

The plot against Zulily “was part of Amazon’s overall scheme to eliminate horizontal price competition among all online retailers marketwide,” said the complaint. The plot would make Amazon’s prices appear, falsely, “to be the lowest without Amazon having to really compete,” and to “groom” consumers “not to look anywhere besides Amazon for the best retail pricing,” it said.

The result “is what Amazon intended,” said the complaint. Zulily’s suppliers, who couldn’t afford to lose Amazon sales, “had no choice but to abide by Amazon’s price-fixing terms,” it said. Amazon forced them to instruct Zulily “to increase its list prices for the at issue goods to be at least as high as Amazon’s,” it said. Amazon also forced the suppliers to pull the offending products from Zulily or “leave Zulily altogether,” it said.

In one year’s time, Amazon’s conduct led “nearly half of the suppliers who sold to both Amazon and Zulily to end their relationships with Zulily,” said the complaint. After only a few months of being targeted by Amazon’s “exclusionary conduct,” Zulily was forced to discard the Best Price Promise it made to consumers “and to remove all Amazon price comparisons” from its website, “effectively abandoning its strategy to gain scale through discount pricing,” it said.

Amazon’s conduct “has caused Zulily substantial revenue losses and reduced traffic to Zulily’s website,” said the complaint. It denies Zulily “the scale necessary to compete in the market,” plus it deadens price competition and deprives the American public of lower prices, it said: “Zulily brings this action under federal and state antitrust laws against Amazon, seeking damages and other relief as recompense for Amazon’s anticompetitive conduct.”

Though Zulily doesn’t host third-party sellers as Amazon does, Amazon and Zulily “share and compete for relationships with many of the same merchants,” said the complaint. Some merchants who sell products on Amazon as third-party retailers or sell products wholesale to Amazon “also sell products wholesale to Zulily,” it said. Almost half of Amazon’s third-party retailers generate 80%-100% of their revenue from sales on Amazon, “making Amazon their most important distribution channel by far,” it said.

Amazon is “equally critical to wholesalers,” said the complaint. Amazon sales account for 20%-30% of all sales of third-party retailers and wholesalers combined, sales that can’t be “replicated on non-Amazon channels,” it said. One reason for the “bad blood” among Amazon’s third-party sellers and wholesale suppliers is that Amazon charges them “supracompetitive fees to deal with Amazon,” it said.

It’s not Zulily’s “standard business model” to charge suppliers any fees, said the complaint. “Zulily buys products wholesale at bargained-for prices and suppliers are charged nothing by way of service or advertising fees,” it said. “Merchants have no power to negotiate fees or other conditions of dealing with Amazon,” it said. But “despite the bullying” and the increasing expense of dealing with Amazon, Amazon’s market power over merchants “has only grown because merchants require access to Amazon’s vast customer network,” it said.

Amazon “enjoys market power” over online retail consumers, and its more than 160 million “Prime-member households” are “particularly lucrative,” said the complaint. Even when Amazon raises prices or lowers its quality, Prime customers “generally have not switched to competing sites,” it said. When Amazon reduced the value of its platform to consumers by eliminating organic searches and relying on paid advertisements instead, Amazon “only gained market share,” it said.

When consumer prices on Amazon increased because sellers had to pay for the ads and passed through at least some of the advertising costs to consumers, Amazon only gained market share, said the complaint. Due to Amazon’s “misleading practices” that condition Prime and other customers to believe that the lowest total prices are on Amazon, competing online retailers would need to be able to offer better discounts or better product selection “to incentivize Prime customers to shop elsewhere,” it said. But Amazon “has foreclosed that possibility through collusion and monopoly power abuses,” it said.