The European Commission (EC) has advanced its probe into Amazon’s marketplace conduct – issuing it with a statement of objections relating to its use of data from third party sellers on its marketplace and opening a spin-off investigation into Amazon’s “Buy Box” and “Prime” features.
In July 2019, the EC announced that it was investigating whether Amazon is using the data it collects from third-party sellers to enhance the competitive offering of its own retail business.
Key to the EC’s concerns is Amazon’s “dual role”, acting both as (a) a platform on which third-party retailers can sell their goods, and (b) a retailer in its own right, competing with third parties for sales of its own Amazon-branded products and products for which it is the seller of record.
A tale of two probes: the EC’s investigations
Objections relating to the use of competitor data
The EC’s preliminary view is that Amazon’s accumulation and use of large quantities of non-public data from more than 800,000 active third-party sellers in the EU on its platform – including data relating to sellers’ revenues on its platform, sellers' past performance and the number of visits to sellers' offers – amounts to an abuse of dominance.
The EC alleges that this data (i) is available to employees of Amazon’s retail business, and (ii) flows directly and in real-time into automated systems of the Amazon retail business on an aggregated basis. Amazon is then allegedly able to draw targeted conclusions from the data and calibrate its retail offers and strategic business decisions, such as (a) which products to launch or promote and at what price; and (b) the choice of the best supplier for a product.
The EC’s preliminary view is that the use of this data gives Amazon a competitive advantage, allowing it to capture the lion's share of the transactions on its platform in most product categories, despite listing a minor share of the products. The EC considers that this constitutes an abuse of dominance under Article 102 TFEU as it allows Amazon to:
- “avoid the normal risks of retail competition” (i.e. the risks of investing in and launching new products); and
- “leverage its dominance in the market for the provision of marketplace services”.
Spin-off investigation regarding the “Buy Box” and “Prime” features
The EC has also announced the opening of an additional investigation into Amazon’s conduct, which will focus on whether Amazon has set certain rules on its platform to artificially favour its own retail offers, as well as the offers of sellers that use Amazon’s logistics and delivery services.
In particular, the EC is investigating:
- the criteria that Amazon uses to select the “winning” seller appearing in the Buy Box on product description pages. This is the “Add to Basket” or “Buy Now” option which allows customers to add items from a specific retailer directly into their shopping carts. The EC describes this prominent placement as “essential” and “crucial”, accounting for more than 80% of transactions on Amazon.
- the ability of marketplace sellers to reach Amazon Prime users effectively. Prime users are a growing proportion of Amazon customers, and are also some of the biggest spenders. The EC is concerned that Amazon may push retailers to use its own logistics and delivery services in order to get “Prime” accreditation for their products and is therefore investigating whether: (a) sellers that do not use Amazon logistics and delivery services can still compete on the merits with those that do; and (b) sellers can easily switch to sell on other marketplaces and are not ‘locked’ into Amazon’s ecosystem.
Big Data: implications of the data use investigation
While specific details of the EC’s allegations against Amazon’s use of data are not public, the press release and other statements offer some indications of the wider implications of the EC’s investigations.
Information exchange through an abuse of dominance lens
When the EC launched its investigation into Amazon last year, it referred to both Article 101 TFEU (relating to anti-competitive agreements) and Article 102 TFEU (relating to abuse of dominance) as legal bases for its investigation.
Although information exchange issues have traditionally been analysed through the lens of Article 101 TFEU, the EC has now couched the investigation exclusively as a novel application of abuse of dominance law, based on Amazon ‘leveraging’ its alleged dominance in a market for the provision of marketplace services (although the press release provides limited additional information on how the market is defined).
As an abuse of dominance investigation, the EC’s eventual analysis might not bring about additional clarity for smaller marketplace providers which collect and use data in similar ways to bring about pro-competitive outcomes.
That being said, the focus on Amazon using data to “avoid the normal risks of competition” is reminiscent of how the EC frames anti-competitive information exchange under Article 101 TFEU where establishing dominance is not a requirement, suggesting an attempt at the blending of the two legal regimes.
It remains to be seen whether this distinction will impact the ability of Amazon to argue a defence based on any pro-competitive benefits or other objective justifications for its use of data.
Scrutiny of the use of aggregated data sets
A well-established mitigation strategy against concerns of anti-competitive information sharing (an abuse under Article 101 TFEU) is to ensure that any data is appropriately aggregated before being shared or used.
The EC’s approach in this investigation suggests that the EC considers that aggregation might not be a clear-cut defence to an allegation of abuse of dominance under Article 102 TFEU. In fact, regardless of whether the Amazon retail business has access to non-aggregated sales data relating to individual sales or sellers, the EC seems to consider more relevant the ability of Amazon to aggregate the data of hundreds of thousands of third-party sellers, with Commissioner Vestager noting that “the case is about big data”.
It also remains to be seen how the EC will distinguish this case from the very widespread circumstances, currently regarded as non-problematic, where companies use market intelligence, datasets and automated systems to inform their business decisions.
The numerous companies that use data and automated systems to inform their strategic decision-making will therefore wish to watch developments in this case closely for any wider implications for the Commission’s evolving use of antitrust law in this area.
Approach to remedies
If the EC ultimately finds that Amazon has infringed competition law as a result of its use of non-public seller data, the focus will then turn to how Amazon can remedy the infringement in a way that is acceptable to the EC. Commissioner Vestager has previously voiced her support for remedies or commitments that require tech companies to change future behaviour, noting that fines are not always the best means of tackling alleged competition issues in the digital sector. The EC’s ongoing Phase 2 investigation of the Google / Fitbit merger indicates that remedies around data use and data silos/ ringfencing can be tricky to agree with the EC.
Algorithmic accountability: implications of the new investigation
The second investigation into the “Buy Box” and “Prime” features is at a very early stage, so fewer inferences can be drawn.
However, the scrutiny on the Buy Box “winner” criteria employed by Amazon is a further indication of the EC’s desire to regulate companies’ use of algorithms, in particular where they are seen to result in favourable treatment of the companies’ own services.
Commissioner Vestager specifically addressed algorithmic accountability in a speech last month, noting that the EC intends to introduce new rules to require companies to provide more information to regulators on the way their algorithms work.
National regulators have also proposed similar solutions. For example, the Chief Executive of the UK Competition and Markets Authority (CMA), Andrea Coscelli, noted last month that the CMA is increasingly focused on “scrutinising how digital businesses use algorithms and how this could negatively impact competition and consumers” and “will be considering how requirements for auditability and explainability of algorithms might work in practice”.
Looking ahead: a continued focus on platforms’ use of data and self-preferencing
The EC’s investigations into Amazon focus on two key themes: (1) the use of data by platforms, and (2) the ability of platforms to engage in ‘self-preferencing’ in order to benefit their wider ecosystems. These are also the types of conduct that the EC is proposing to restrict as part of its ongoing consultation for ex ante regulation to govern the conduct of so-called “large online platforms acting as gatekeepers”.
The EC has so far offered very little insight into what it considers to be the anti-competitive effect of Amazon’s use of third-party data, beyond high level information around Amazon’s ability to generate greater revenues in popular product categories. In addition, the EC’s press statements do not indicate whether any consideration has been given to the pro-competitive benefits and efficiencies of data use and self-preferencing conduct, such as the benefits to users of platforms and the injection of competition into different markets.
It remains to be seen how these considerations will be factored into these EC investigations, as well as the ongoing consultation around which practices (if any) should be prohibited or restricted under any ‘gatekeeper’ regulation.