The Federal Trade Commission and 17 state attorneys general announced they sued Amazon, alleging the online retailer maintains monopoly power by blocking competition, inflating prices, overcharging sellers and degrading product selection and quality for shoppers.

“Today’s lawsuit seeks to hold Amazon to account for these monopolistic practices and restore the lost promise of free and fair competition, said Lina M. Khan, FTC chair.

The lawsuit, filed Tuesday in federal court in Amazon’s home state of Washington, is the result of a years-long investigation into the company’s businesses and one of the most significant legal challenges brought against it in its nearly 30-year history.

In the 168-page complaint, the FTC and states allege that Amazon punished sellers by using anti-discounting measures like burying discounting sellers far down in the search results or knocking them off their "Buy Box" feature which allows the shopper to "Add to Cart" or "Buy Now."

The FTC and states also alleged that sellers were conditioned to be "Prime eligible" if they wanted to use Amazon's fulfillment service and "to fully reach Amazon's enormous base of shoppers."

Amazon's David Zapolsky, general counsel and senior vice president of Global Public Policy at Amazon said the suit is "wrong on the facts and the law" and a win for the FTC would result in fewer products, higher prices and slower deliveries for consumers.

"The practices the FTC is challenging have helped to spur competition and innovation across the retail industry, and have produced greater selection, lower prices, and faster delivery speeds for Amazon customers and greater opportunity for the many businesses that sell in Amazon’s store," Zapolsky said in a statement.

What states sued Amazon?

There are currently 17 states suing Amazon − Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, and Wisconsin.

But California is not one of them. In September 2022, California brought a lawsuit against Amazon for similar reasons, alleging they stifled competition which caused prices across California to increase and penalized merchants if they offered lower prices than Amazon.

The trial is set for 2026.

California Attorney General Rob Bonta welcomed the FTC's and the state's lawsuit today.

"I welcome the FTC and sister states to this fight against Amazon. Misuse of monopoly power on the backs of consumers and workers deserves no place in our economy," he said in a prepared statement.

'Pockets 45 cents of every dollar'

Researchers from the Institute for Local Self-Reliance, a national research and advocacy organization that studies local communities and the corporations around them, looked at Amazon's business model and found that the company's fees were crushing many sellers and raising consumer prices as Amazon expanded.

Researchers found that Amazon increased its cut of each sellers' revenue by imposing large fees making it difficult for businesses to remain viable. In 2014, the company took 19% of sellers' revenue. By 2023, it increased to 45% of the sellers' revenue. ILSR researchers said Amazon's cloud division, AWS, is widely assumed to be the profit driver, but they believe "seller fees are an even bigger source of profit than AWS."

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Amazon does not disclose figures on profits from seller fees, and declined to do so when asked in a 2020 Congressional hearing, according to the ILSR report.

Stacy Mitchell, co-director at ILSR, said e-commerce is dominated by Amazon which has "employed a set of calculated and illegal strategies to block competition."

"At the heart of the case is Amazon’s exploitation of the independent businesses selling on its site. Amazon traps these sellers and preserves its market dominance by impeding sellers’ ability to grow their business on other sites," she said.

The Associated Press contributed