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Unboxing Competition: Breaking up Amazon Will Benefit Chinese Marketplaces at Small Businesses’ Expense

A central argument Federal Trade Commission (FTC) Chair Lina Khan and her allies consistently make is that Amazon is hampering competition and needs to be broken up.  Reportedly, the agency is preparing a lawsuit to break up the company – a move that would ultimately hurt sellers who use Amazon’s services to reach global markets, reduce their overhead, and grow their businesses.

Central to the FTC’s complaint is a misplaced grievance against the multitude of services Amazon offers small businesses that choose to sell on the Amazon Marketplace. One of those services is known to sellers as “FBA,” or Fulfillment by Amazon. This provides sellers with integrated support for order processing, shipping, and returns. The FTC’s efforts would disrupt this vast logistics network for small businesses, and drastically change how the marketplace operates. After years of investigation, it is clear FTC still does not understand how e-commerce or Amazon works and is pursuing this suit on false premises or ignoring essential points. 

First, the FTC ignores fierce competition from online marketplaces from across the globe, including from Chinese firms like Shein and Temu. Both companies aggressively recruit U.S. sellers and offer deep discounts to woo sellers to their new marketplace platforms. Here at home, more U.S. retailers, from Macy’s to Home Depot, are leveraging their brands to create marketplaces for third-party sellers. In response, sellers aren’t just picking one platform. A 3C study shows that 87% of Amazon sellers also sell on at least one other online marketplace, including Walmart (54%), eBay (50%), Target (38%), and Etsy (30%). 

Second, Amazon’s marketplace revolutionized e-commerce and helped level the playing field, allowing small businesses to compete with larger brands and retailers and enabling tens of thousands of U.S.-based brands to have seven-figure revenue streams. Before the rise of e-commerce, new product sellers were beholden to buyers at the major retail chains, who were highly defensive of their limited shelf space. Breaking through and getting products on the shelves at major retail chains was difficult or virtually impossible. Online marketplaces like Amazon provide direct access to millions of customers worldwide. Moreover, any seller can qualify their products for Prime, an innovation that changed the e-commerce landscape and provides consumers with the fast, free shipping they want. 

In addition, Amazon’s reach and services help small sellers and emerging brands scale at an unmatched pace. For example, FBA provides many sellers with a one-stop shop for fulfillment services. Without FBA, small sellers would need to find alternative warehouse and shipping solutions and hire additional employees for potentially just a few packages daily. FBA makes it easy for these sellers to start small and quickly grow their warehousing and fulfillment operations to match their sales. In short, Amazon’s growth and success has directly translated into innovation and services that drive growth and success for millions of sellers.

Small sellers like Alfred Mai serve as a great example. As the owner of tabletop card game company ASM Games based in San Francisco, California, Mai sells his card games on Amazon and can compete with Parker Brothers, Milton Bradley, and all the other traditional retailers that carry similar games. Mai uses FBA for all his shipping and handling logistics. “Great reviews, competitive prices, and fast delivery times have enabled me to compete with and often beat much larger companies,” said Mai. 

In its long-standing political campaign, the FTC has grossly overlooked the competitive e-commerce marketplace landscape and the sheer value Amazon brings to small sellers. And the dangerous part for sellers is the FTC is ignoring the potential consequences of this alleged suit for small sellers. If the FTC’s suit is successful, breaking apart Amazon’s fulfillment services from its marketplace will decrease Amazon’s value to small sellers. It will also make it harder for Amazon to offer sellers and customers the next great landscape-shifting innovation. That is providing a huge advantage to other marketplaces, particularly Chinese marketplaces like Shein and Temu, that cannot provide the same level of service as Amazon. But will hurt the millions of sellers that leverage the Amazon store to build their businesses. 

Lastly, if the services Amazon provides to small sellers result in enhanced scrutiny and enforcement action from the FTC, this will serve as a signal to other retailers building tools for third-party businesses: don’t be too successful, or the FTC will come after you too; further limiting growth and innovation in ecommerce for the foreseeable future. 

As the debate continues, the FTC must understand how small sellers succeed in the current hyper-competitive online marketplace environment before upending the whole system and putting those sellers’ futures at risk.

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