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FTC Case Against Amazon Hinges on ‘Online Superstore’ Label

FTC Case Against Amazon Hinges on ‘Online Superstore’ Label

(Bloomberg) -- The Federal Trade Commission’s case against Inc. hinges in part on putting the e-commerce giant in a class of its own: The Online Superstore.

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The 172-page case filed Tuesday seeks to differentiate the Seattle-based company from retail competitors that generate most of their sales at physical stores or from more niche-oriented websites. The FTC says these so-called online superstores are different because they offer convenience in their depth of inventory and round-the-clock accessibility.

“Brick-and-mortar stores and online stores with a more limited selection are not reasonably interchangeable with online superstores for the same purposes and are thus properly excluded from the online superstore market,” the FTC says. It goes on to argue that the format’s positive reputation and perceived quality makes it a preferred destination for consumers.

In the lawsuit’s section on online superstores, the FTC says Amazon has an 82% market share of the value of goods sold online among Amazon, EBay Inc., Walmart Inc. and Target Corp., citing data from Insider Intelligence.

Putting Amazon in a unique market is key to portraying it as a dominant player that can coerce its 2 million merchant partners to pay Amazon for advertising, use its logistics services and even raise prices on competing websites so shoppers aren’t lured away.

While Amazon captures more than one in every three dollars spent online in the US, according to Insider Intelligence, the company prefers to be considered in the broader framework of overall retail, a definition that reduces its market share.

The FTC also alleges that Amazon has monopoly power over selling services to merchants who use its online marketplace. The combination of the two markets, the agency said, makes it difficult for competitors to emerge.

Wedbush Securities Inc. analyst Scott Devitt says putting Amazon in a newly created market could be a tough sell in court. “What the FTC released so far is pretty weak,” said Devitt, who doesn’t expect the case to impact Amazon’s business or faze investors. “It just seems like the FTC and its chair want to redefine competition in the internet age, and it seems like nonsense.”

Still, it’s not the first time the FTC has used the one-stop-shopping concept to define a market, said Amanda Lewis, a former FTC attorney who worked on the House Judiciary Committee’s probe of the tech giants. In a variety of cases involving supermarkets, the FTC has distinguished between grocery stores and others like convenience stores that sell a more limited selection of food products.

--With assistance from Matt Day.

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