How Amazon Exploits and
Undermines Small Businesses,
and Why Breaking It Up Would
Revive American Entrepreneurship
Most Americans believe that Amazon’s outsized power is dangerous and must be
reined in. A recent poll found that nearly 80 percent of voters believe Amazon
should be subject to greater regulation, and more than half support breaking it up.
1
By Stacy Mitchell and Ron Knox, June 2021
Amazon’s Cut of Sellers’ Revenue
2019
30%
2018
28%
2017
24%
2016
23%
2015
21%
2014
19%
Notes: Amazon’s nancials break out revenue from third-party seller fees, but do not include seller
payments for product advertising. ILSR has estimated those fees and included them here. The esti-
mates are based on data from eMarketer and information from Amazon’s nancials.
Sources: Amazon’s 10-K lings; eMarketer.
A growing number of lawmakers are moving to do just
that.
2
A 15-month investigation by the House Judiciary
Committee concluded that Amazon “has monopoly power
over many small- and medium-sized businesses.”
3
It called
for breaking up the company by separating its major
business lines into stand-alone rms and regulating its
online marketplace to ensure that sellers are treated fairly.
Both Democrats and Republicans have voiced support for
these measures.
4
As lawmakers have grown increasingly serious about
addressing Amazon’s harms, Amazon has sought to portray
itself as benecial to independent small businesses.
5
In
splashy campaigns, press releases, and lobbying at the
Capitol, Amazon contends that it has “a mutually benecial
relationship” with the small businesses that depend on its
platform, that these businesses are “thriving,” and that “our
interests are well aligned.”
6
Small business owners themselves tell a very different
story. In a 2019 survey, three-quarters of independent
retailers ranked Amazon’s dominance as a major threat to
their survival, and only 11 percent of those selling on its
site described their experience as successful.
7
It’s not only
retailers; small consumer product manufacturers, book
publishers, and other creators are also imperiled. All of
Amazon Small Business Fact Sheet
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WWW.ILSR.ORG
Amazon Small Business Fact Sheet
“When you are small,
someone else that is bigger can
always come along and take away
what you have.”
— JEFF BEZOS, FOUNDER AND CEO OF AMAZON
14
v Amazon steals independent businesses’ best ideas and
innovations.
While Amazon touts sellers as “partners” in public, within the
company, it refers to them as “internal competitors.”
15
Both
the House investigation and reporting by the Wall Street
Journal have found that Amazon has spied on sellers and
appropriated data about their sales, costs, and suppliers.
It’s then used this information to create its own competing
versions of their products, often giving its versions superior
placement in the search results.
16
Amazon has also been
caught using its venture capital fund to invest in startups,
only to steal those startups’ ideas and create rival products
and services. In some cases, “Amazon’s decision to launch
a competing product devastated the business in which
it invested.”
17
these small businesses are trapped in Amazon’s monopoly
gambit: the tech giant controls access to the online market,
which leaves them little choice but to sell on its platform. Yet
doing so allows Amazon, also their competitor, to exploit
and undermine them.
As Amazon has grown, the number of independent
businesses has fallen. Between 2007 and 2017, the number
of small retailers fell by 65,000.
8
About 40 percent of the
nation’s small apparel, toy, and sporting goods makers
disappeared, along with about one-third of small book
publishers.
9
(Small is dened here as under 500 employees.)
This factsheet details the specic ways in which Amazon
abuses its market dominance to hurt smaller competitors.
v Amazon has cornered the online market, impeding the
ability of small businesses to operate independently
and blocking them from having direct relationships
with their customers.
A majority of shoppers looking to buy something online
begin their search on Amazon, and its site captures about
50 percent of online spending in the U.S.
10
This dominance
allows Amazon to function as a gatekeeper: retailers and
brands must sell on its site to reach much of the online market.
This dependence is risky and leaves many businesses living
in fear. Changes to Amazon’s search algorithms or selling
terms can cause their sales to evaporate overnight. Amazon
also makes it hard for sellers to reduce their dependence
on its platform, in part by making their brand identity
almost invisible to shoppers and preventing them from
building relationships with their customers. Amazon strictly
limits contact between sellers and customers.
11
In April
2021, it implemented a new policy that blocks most sellers
from even seeing the names and addresses of the people
buying their products.
12
“If the customer is on Amazon,
as a small business you have to say,
‘That is where I have to go.‘ Otherwise,
we are going to close our doors.”
— CHRIS LAMPEN-CROWELL, OWNER OF
GAZELLE SPORTS IN GRAND RAPIDS, MICHIGAN
13
The Institute for Local Self-Reliance is a national research
and advocacy organization working to reverse the
concentration of corporate power and build thriving,
equitable communities.
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3
Amazon Small Business Fact Sheet
WWW.ILSR.ORG
“It’s not a comfortable feeling knowing that
[Amazon has] people internally specically
looking at us to compete with us.”
– TRAVIS KILLIAN, CEO OF UPPER ECHELON, A HOME GOODS
MANUFACTURER IN AUSTIN, TEXAS, THAT SELLS ON AMAZON’S SITE
18
v Amazon compels sellers to buy its warehousing and
shipping services, even though many would get a better
deal from other delivery providers.
Amazon has made a seller’s ability to generate sales on its
site largely contingent on purchasing its warehousing and
shipping services (“Fulllment By Amazon” or FBA). Sellers
who subscribe to FBA are favored by Amazon in two ways:
they’re allowed to add the Prime badge to their products
and they’re signicantly more likely to be chosen by the
site’s algorithm as the default seller of a product (known
as “winning the buy box”).
19
Both are crucial to generating
sales. By making FBA all but mandatory, Amazon has built
a massive logistics business on the backs of independent
businesses who would, in many cases, prefer to use another
carrier. “I’d recommend Amazon if they were really good
on price, but they’re not. If it weren’t for the algorithm…
FBA wouldn’t be attractive,” according to Matthew White, a
logistics consultant for e-commerce companies.
20
If you “actually add up all the ways
Amazon nickels and dimes you…
you can’t make money.”
— DOUG MRDEZA, FOUNDER OF TOP SHELF BRANDS,
AN E-COMMERCE SELLER IN MICHIGAN
21
v Amazon imposes high fees on sellers, putting them at
risk of going under.
Through the fees it charges sellers, Amazon keeps an
average of 30 percent of each sale independent businesses
make on its site, up from 19 percent in 2014.
22
Amazon has
extracted more from sellers in part by making it harder for
them to generate sales unless they purchase additional
Amazon services, including shipping and advertising.
Amazon’s revenue from seller fees soared to $60 billion
in 2019 and has grown so large that “sellers are effectively
cross-subsidizing Amazon’s retail division.”
23
These high
fees make it nearly impossible to sustain a protable
business. Because of the rising cost of these monopoly tolls,
“the vast majority of those who start selling on Amazon’s site
fail within a few years.”
24
v Amazon blocks independent businesses from offering
lower prices on other sites.
Under scrutiny from members of Congress, Amazon in 2019
eliminated clauses in its contracts that barred third-party
sellers from offering their goods for less on rival shopping
sites.
25
But Amazon continues to indirectly enforce this
rule through its “Fair Pricing Policy.”
26
If Amazon’s pricing
bots detect that a seller is offering a lower price elsewhere,
Amazon suppresses the seller’s sales by demoting the item
in search results, so that customers are unlikely to see it,
or making the seller ineligible to win the buy box.
27
These
actions invariably cause sales to crater. As a result, even
though it may cost less to sell on competing sites, sellers
can’t lower their prices below Amazon’s, on any platform.
This insulates Amazon from competition and preserves its
dominance.
v Amazon shuts down small businesses without due process.
Despite small businesses’ reliance on Amazon’s platform
to reach customers, Amazon routinely suspends sellers’
accounts and seizes their inventory and cash balances.
28
These actions are often abrupt and arbitrary, and can
be catastrophic, costing sellers enormous sums in lost
merchandise and receivables. Sellers have little recourse.
It can take weeks or months for Amazon to respond to
complaints of mistaken or inappropriate suspensions.
29
Sellers who attempt to recover their losses or get their
accounts reinstated must go through an arbitration process;
4
Amazon Small Business Fact Sheet
WWW.ILSR.ORG
Amazon’s standard contract bars them from pursuing legal
action. As the House Judiciary Committee’s investigation
found, “the [arbitration] process is unfair and unlikely to
result in a meaningful remedy.”
30
Evidence collected during
the investigation showed that “Amazon’s poor treatment of
sellers is far from an isolated incident.”
31
“I paid that bribe [to Amazon]
and the books reappeared.”
— DENNIS JOHNSON, CO-OWNER OF MELVILLE HOUSE,
A BOOK PUBLISHER IN BROOKLYN, N.Y.
32
v Amazon sells goods and services below cost to harm
rivals and take market share.
Amazon has consistently engaged in predatory pricing
— selling products and services below cost to kill off
competitors and expand its market share.
33
During its
rst six years, Amazon lost billions of dollars selling books
below cost, a strategy that drove many bookstores out
of business.
34
Amazon has also used predatory pricing
to eliminate e-commerce rivals. It reportedly lost $150
million selling shoes below cost in a successful bid to
compel Zappos to agree to a merger.
35
Similarly, it clocked
hundreds of millions of dollars in losses selling diapers
below cost to destabilize Diapers.com and force it into a
merger.
36
Amazon has also incurred strategic losses to keep
customers locked into Prime and thus wed to its shopping
platform. It has lost as much as $700 million a year on
Prime Video, for example.
37
Amazon initially nanced its
predatory pricing schemes through a tacit agreement with
investors, who accepted little or no prot in exchange for
rapid market share growth.
38
More recently, it’s been able to
cross-subsidize losses by tapping into the high prots of its
cloud division, Amazon Web Services. In 2020, 59 percent
of Amazon’s operating income came from AWS.
39
v Amazon strong-arms small brands, destabilizing their
businesses and making it harder for them to grow and
develop new products.
As Amazon muscles competing retailers out of the market,
small manufacturers are left with fewer channels through
which to market and sell their products. This gives Amazon
even more leverage to extract price concessions and
special terms from them. Those who do not comply can
face ruinous retaliation. When the book publisher Melville
House declined Amazon’s demand for steeper discounts,
for example, Amazon removed the buy button from all of
its titles, causing a devastating drop in sales.
40
Similarly, the
phone accessory-maker PopSockets reported having to
buy nearly $2 million in advertising from Amazon before
the tech giant would rid its platform of counterfeit versions
of PopSockets’ products.
41
As Amazon eeces producers,
these companies are left with less revenue to invest in
developing new products and growing their businesses.
“If you can’t make any money, it takes away invention and
innovation,” an executive at a sporting goods company
explained.
42
“There’s a whole class of businesses out
there who live in fear of going out of
business as a result of the at of Amazon
and their algorithms.”
— AN ANONYMOUS THIRD-PARTY SELLER IN AN
INTERVIEW WITH THE SEATTLE TIMES
43
Credit: Marie Donahue
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Amazon Small Business Fact Sheet
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Congress Needs to Break Up
Amazon Along Business Lines and
Set Standards of Fair Dealing for
Its Marketplace
Congress shouldn’t let Amazon dictate whether and how
small businesses can compete online. If policymakers
do not act to check Amazon’s outsized power, they’re
effectively allowing Amazon to be a private regulator of
the online market, deciding which businesses may reach
customers and the price they must pay to do so.
To restore an open, competitive online market,
policymakers must:
1. Break up Amazon along its major lines of business.
Amazon derives much of its power to bully and exploit
independent businesses from its integration across busi-
ness lines and the fact that it plays multiple roles in markets.
This allows it to leverage its dominance in one area to
gain an advantage in others: It uses its power as an online
marketplace to grow its logistics business, force conc-
essions from suppliers to its retail division, and appropriate
seller data to inform development of its own products.
“Market participants that depend on Amazon’s retail
platform are effectively forced to accept its demands —
even in markets where Amazon would otherwise lack the
power to set the terms of commerce,” the House Judiciary
Committee’s investigation concluded.
44
In its report, the
committee called for breaking up the dominant tech rms
along business lines. By separating Amazon’s third-party
marketplace from its retail division, and spinning off its
cloud services and other major divisions into stand-alone
companies, policymakers could remove the incentive and
ability for Amazon to exploit its gatekeeper status to favor
its own interests and harm competition.
If policymakers do not act to check
Amazon’s outsized power, they’re effectively
allowing Amazon to be a private regulator
of the online market, deciding which
businesses may reach customers and the
price they must pay to do so.
2. Require dominant digital platforms to deal fairly with
the independent businesses that rely on them.
Breaking up Amazon and separating its major divisions into
new companies is essential to removing the underlying
conicts of interest and incentives to self-deal that drive
its anti-competitive and abusive behavior. But even as
stand-alone companies, dominant digital platforms, such
as Amazon’s retail marketplace, will still serve as critical
infrastructure for other businesses, much like railroad
and telephone lines. As such, these platforms should be
regulated in a similar fashion. Congress should enact
legislation requiring them to treat all sellers fairly and
on equal terms. Congress should also nullify contract
provisions that force sellers to accept mandatory arbitration
or other coercive terms for adjudicating disputes.
3. Block Amazon from engaging in abusive tactics by
making our antitrust laws stronger and easier to enforce.
In the 1980s, federal antitrust enforcement agencies and
the courts began to radically reinterpret our antitrust laws.
Judges set aside the concerns about outsized power that
had led Congress to pass these laws in the rst place and
instead oriented antitrust enforcement around the goal
of maximizing efciency. Under this framework, the courts
began to look favorably on consolidation and, through a
series of misguided rulings, made many antitrust violations
very difcult to prove. This fundamental shift allowed
Amazon to amass market power by engaging in anti-
competitive tactics, such as predatory pricing, that would
have been blocked in an earlier period. Congress should
restore the antitrust laws to their original strength and
purpose by enacting legislation that claries the intent of
these laws and sets clear, bright-line rules that prohibit anti-
competitive behavior and don’t allow judges to rewrite the
law. Doing so will make antitrust enforcement simpler, less
expensive, and more effective.
6
Amazon Small Business Fact Sheet
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1. “Public Support for Regulation of Big Tech: Analysis of Survey Findings,”
Lake Research Partners, Feb. 2021.
2. “Congress Is Leaning Towards a Big Tech Breakup,” Hal Singer, ProMarket,
Mar. 9, 2021.
3. “Investigation of Competition in Digital Markets,” U.S. House of
Representatives, Subcommittee on Antitrust, Commercial and
Administrative Law of the Committee on the Judiciary, 2020, at 15
[hereinafter, House Investigation].
4. For example, earlier this year, Republican Rep. Ken Buck, who is the
ranking member on the House Antitrust Subcommittee, speaking at
the Conservative Political Action Conference, said if “we break these
companies up,” it would help ensure that “Amazon can’t create a product
and compete with the company that is actually using Amazon.” (“Antitrust
at CPAC: Conservatives Debate Breaking Up Big Tech,” Jana Kasperkevic,
ProMarket, Mar. 2, 2021.) Similarly, the chair of the Subcommittee,
Democratic Rep. David Cicilline, speaking at a forum on antitrust policy,
said "How Amazon is working creates a tremendous amount of unfairness.
It fosters anticompetitive behavior, favors self-preferencing for their own
products. I think you either need to be a seller of goods and services
or you can control the marketplace — you cannot do both." ("Reining in
Monopoly Power: Small Businesses and the Push to Strengthen Antitrust
Laws,” event hosted by the Institute for Local Self-Reliance, Feb. 22, 2021).
5. “Making Ends Meet,” Politico (Amazon-sponsored advertorial), Nov. 20,
2020.
6. “Fringe Notions On Antitrust Would Destroy Small Businesses and Hurt
Consumers,” Politico (Amazon-sponsored advertorial), Oct. 2020.
7. “2019 Independent Business Survey,” Institute for Local Self Reliance, July
2019.
8. Data is from the U.S. Economic Census.
9. Ibid.
10. House Investigation at 254 and 256.
11. “Communication Guidelines,” Amazon Seller Central, https://sellercentral.
amazon.com/gp/help/external/G1701 (last visited May 12, 2021).
12. “Amazon-Fullled Shipments Report,” Amazon Seller Central, https://
sellercentral.amazon.com/gp/help/external/200453120 (last visited May
12, 2021).
13. “Amazon Doesn’t Just Want to Dominate the Market, It Wants to Become
the Market,” Stacy Mitchell, The Nation, Feb. 15, 2018.
14. The Everything Store: Jeff Bezos and the Age of Amazon, Brad Stone, New
York, N.Y.: Little Brown, 2013, at 52.
15. House Investigation at 16.
16. House Investigation at 274-282; “Amazon Scooped Up Data From Its Own
Sellers to Launch Competing Products,” Dana Mattioli, The Wall Street
Journal, April 23, 2020.
17. “Amazon Met With Startups About Investing, Then Launched Competing
Products,” Dana Mattioli and Cara Lombardo, The Wall Street Journal, July
23, 2020.
18. Op cit. “Amazon Scooped Up Data From Its Own Sellers to Launch
Competing Products.”.
19. “Amazon’s Monopoly Tollbooth,” Stacy Mitchell, Ron Knox and Zach
Freed, ILSR, July 28, 2020; “How Amazon Rigs Its Shopping Algorithm,”
Stacy Mitchell and Shaoul Sussman, ProMarket, Nov. 6, 2019; “How
Amazon Used the Pandemic to Amass More Monopoly Power,” Ron Knox
and Shaoul Sussman, The Nation, June 26, 2020.
20. Ibid at 8.
21. Ibid at 5.
22. Ibid at 3.
23. Ibid at 6.
24. Ibid at 3.
25. “Amazon silently ends controversial pricing agreements with sellers,”
Makena Kelly, The Verge, March 11, 2019. European regulators have also
concluded that Amazon’s “Most Favored Nation” pricing policies are
anti-competitive. See “Case AT.40153, E-Book MFNs and related matters
(Amazon),” Antitrust Procedure, European Commission Directorate
General for Competition, May 4, 2017.
26. “Amazon Marketplace Fair Pricing Policy,” available at https://sellercentral.
amazon.com/gp/help/external/G5TUVJKZHUVMN77V (last visited May
12, 2021).
27. “Amazon Squeezes Sellers That Offer Better Prices on Walmart,” Spencer
Soper, Bloomberg, Aug. 5, 2019; House Investigation at 295.
28. Statement of Stacy F. Mitchell, Co-Director, Institute for Local Self-Reliance,
Subcommittee on Antitrust, Commercial and Administrative Law of the
Committee on the Judiciary hearing on Innovation and Entrepreneurship,
July 16, 2019.
29. “Prime and Punishment: Dirty Dealing in the $175 Billion Amazon
Marketplace,” Josh Dzieza, The Verge, Dec. 19, 2018.
30. House Investigation at 272-273.
31. House Investigation at 271.
32. Op cit. “Cheap Words: Amazon is good for customers. But is it good for
books?”.
33. “Amazon’s Antitrust Paradox,” Lina Khan, Yale Law Journal, 2017.
34. “Amazon’s Stranglehold: How the Company’s Tightening Grip on the
Economy is Stiing Competition, Eroding Jobs, and Threatening
Communities,” Stacy Mitchell and Olivia Lavecchia, Institute for Local Self-
Reliance, at 15.
35. Op cit. “Amazon Doesn’t Just Want to Dominate the Market, It Wants to
Become the Market.”
36. House Investigation at 263.
37. “Amazon Prime Instant Video Is A Huge Loss Leader,” Adam Levy, The
Motley Fool, Feb. 22, 2017.
38. Op cit. “Amazon’s Antitrust Paradox.”
39. Amazon’s Annual Report, 2020.
40. “Cheap Words: Amazon is good for customers. But is it good for books?”
George Packer, The New Yorker, Feb. 17, 2014.
41. Testimony of David Barnett, founder and CEO of PopSockets LLC, to
House Judiciary Committee, Field Hearing on Online Platforms and
Market Power, Part 5, conducted January 17, 2020.
42. Op cit. “Amazon’s Stranglehold” at 28.
43. “Third-party sellers giving Amazon a huge boost,” Ángel González, Seattle
Times, May 31, 2016.
44. House Investigation at 379.
Notes
