Amazon has been hit with a €1.3bn fine by Italy’s antitrust regulator, which says the tech giant abused its position to promote its own products over those of third parties. This practice, known as ‘self-preferencing’, is in the crosshairs of regulators around the world and could be banned outright in Europe when the new Digital Markets Act legislation is introduced. But experts are divided over whether the end of self-preferencing is good or bad for businesses and consumers.
An investigation by the Italian Competition Authority found that Amazon used its position to influence third-party sellers on Amazon.it to use its logistics provider – Fulfilment by Amazon (FBA) – rather than other delivery services. Companies that used FBA were given access to a set of exclusive benefits, including the Amazon Prime label, which helped increase their visibility and boost sales on the online marketplace, the regulator said.
As well as the fine – one of the largest handed to a US tech business by a European regulator – the regulator says it will impose corrective measures on Amazon. The company says it disagrees with the regulator’s findings and plans to appeal the decision. “When sellers choose FBA, they do so because it is efficient, convenient and competitive in terms of price,” it said in a statement.
Amazon and its Big Tech rivals may have to get used to this kind of action, however, as the Italian government’s actions mimic those taking place across Europe and elsewhere.
What is Big Tech self-preferencing?
Amazon’s dual role as both marketplace and a trader within that marketplace is what triggered the Italian investigation, says Petar Petrov, research associate and lecturer in the competition law and digitalisation research group at the Vienna University of Economy and Business, who spoke to Tech Monitor in a personal capacity.
“What distinguishes Amazon from other platforms is that it’s not just a company with high financial power or market share, it is almost an indispensable partner bringing together smaller retailers and consumers,” Petrov says. “In that sense, it is an essential piece of infrastructure without which smaller retailers would never reach customers or even be visible to them.”
Regulatory problems arise when Amazon and other platforms give preferential treatment to their own products, either by displaying them at the top of the page or, as was the case in Italy, incentivising retailers to use them to boost their own rankings. Petrov says this has the effect of “recommending to innocent consumers what the best products are, and which have the best prices.” He adds: “Most consumers will not do too much more research and will it take it for granted that this information is correct.”
Amazon is not the first company to be fined for self-preferencing. In November the European Court upheld a €2.42bn fine issued to Google in 2017, after the European Commission found it abused its position by promoting its Google Shopping comparison service on its main search engine page. This gave Google Shopping an unfair advantage over other comparison websites. The court ruling declared self-preferencing constituted an abuse of dominance.
This ruling could be formalised in major new legislation, the Digital Markets Act (DMA), which is currently being drawn up by the European Union and defines Amazon and its Big Tech platform rivals as “gatekeeper” companies. If the bill becomes law, it would put obligations on these companies to stop self-preferencing and compel them to share customer data from their platforms with third parties. Fines will be levied at companies that don’t comply with the conditions of the bill, the draft text of which was approved by the EU council last month.
The US is also threatening to get tough on self-preferencing, and in October a bi-partisan bill was brought forward in the Senate which would prohibit major tech platforms from favouring their own products.
Is the end of Big Tech self-preferencing a positive step?
Petrov argues that this regulatory push will be good for businesses operating in digital markets. “It will protect them from being less visible,” he says. “It certainly benefits smaller and mid-level providers, and will benefit consumers. You can’t assume an average consumer is really well-informed, they just check the internet and look for the best place. This is a way to reduce leveraging practices and force platforms to be more transparent and compete on the merits of their products.”
But not everyone is convinced. Sam Bowman, director of competition policy at the International Center for Law & Economics think tank, says Amazon argues that FBA offers a more reliable service to consumers than other delivery options, and notes that there is no suggestion in the Italian ruling that consumers were harmed by Amazon’s behaviour. “It’s a philosophical question of whether Amazon has the right to prioritise services in this way if it wants to,” he says. “What this kind of ruling does is reduce Amazon’s role to a facilitator of the network between customers and businesses.”
Bowman says the role of platforms like Amazon goes beyond that of an intermediary and argues they are useful for consumers who are not confident accessing digital markets. “They bring order to the chaos of the internet,” he says. “For a lot of people, navigating that chaos is very difficult, takes a lot of time and carries a lot of risk. The platform is not just a conduit, it applies rules and quasi-regulations on the market it creates. We hope those rules will benefit customers, and if not they will shop elsewhere. The logic of this decision is that Amazon does not have the right to apply its own rules, and is simply a downpipe between consumers and sellers.”
He agrees with Petrov that the ruling will be good for some businesses. “If you have a customer base that doesn’t mind getting a cheaper but perhaps less good fulfilment service, then this ruling allows you to compete on price more intensely,” he says. “It may mean customers are less likely to use services like Prime because it could be seen as less reliable, but I don’t expect that to be something individual businesses feel acutely.”
What next for Amazon in Europe – and the UK?
Petrov says Amazon will need to look at its working practices as a result of the ruling, but doesn’t expect any significant short-term changes to the way the company operates in Europe. “[Amazon] will need to introduce a lot of internal compliance practices as a result of this ruling,” he says. “The message from this ruling, and the Google ruling, is clear; you can’t do self-preferencing if you’re super-dominant. The DMA is likely to spell this out implicitly.”
But Bowman believes the impact of the ruling – and the DMA – could be that platforms such as Amazon withdraw their own products from the European market and take a more neutral position. “Neutrality sounds quite appealing, but in terms of usability it may make things worse for consumers,” he says. “A platform like eBay is much more open and neutral than Amazon, but not necessarily better. I think a consequence [of the self-preferencing ban] will be the eBay-ification of a lot of tech platforms.”
Bowman says this change could take some time, depending on how the final DMA takes shape. “At the moment the way it is written seems very prescriptive about what can and can’t be done. We don’t know if this will lead to companies changing what they do overnight, or whether they will continue as usual and wait to discover how the European commission interprets these rules through rulings or lawsuits.”
Businesses using Amazon’s marketplace in the UK are likely to see fewer changes, Bowman says, as the country’s proposed legislation for regulating digital platforms is less prescriptive, focusing on outcomes rather than strict rules. “The UK approach is likely to be a lot softer, with the companies developing a relationship with the regulator,” he says. “I’m not convinced this will do much for competition, but the ambiguity means it is less likely to generate unsatisfactory outcomes where ‘good’ practices are banned because they don’t comply with the rules.”