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The commitments are designed to ensure fairer conditions of competition for third party sellers on the Amazon Marketplace and digital display advertisers on Facebook. They cover a range of issues, including alleged self-preferential algorithms and unfair use of third-party data.
The cases arguably give an early indication of the kind of behavioural interventions the CMA may impose on the digital activities of the most powerful tech firms when the Digital Markets, Competition and Consumers (DMCC) Bill comes into force towards the end of 2024.
Amazon and Meta are both likely to be designated with Strategic Market Status (SMS) under the DMCC Bill, which will enable the CMA to impose bespoke conduct requirements similar to these commitments without needing to pinpoint any abuse of dominance by either firm. Indeed, the CMA has said that the commitments may be superseded by conduct requirements for Amazon and Meta when the DMCC Bill comes into force.
In this article we consider what the commitments mean in practice for third party sellers operating on Amazon and Facebook Marketplaces.
There are a number of similarities between the Meta and Amazon cases.
First, both were premised on the CMA’s assumption (albeit not proven) that Amazon and Meta are both dominant in their respective digital markets in the UK: Amazon for supply of e-commerce marketplace services and Meta for the supply of digital display advertising.
Both cases also concerned, to varying extents, the ability of Amazon and Meta to utilise data obtained from competitors who use their platforms to benefit their own products and services.
These points aside, the facts of the cases were different. The Amazon case focused exclusively on the Amazon Marketplace, where Amazon Retail sell its own products alongside those of third-party sellers. Amongst other things, the commitments addressed specific concerns that Amazon’s algorithms for determining which products featured in the highly desirable ‘Buy Box’ were self-preferential in the sense that they favoured Amazon’s own products and/or those of third party sellers who used Amazon’s own fulfilment services.
The Meta case was more complex in the sense that it involved Meta (allegedly) leveraging its dominance in the supply of digital display advertising via Facebook into a different market – namely the Facebook Marketplace. The Facebook Marketplace is a peer-to-peer selling platform primarily used by private sellers or small businesses. The CMA did not allege that Meta was dominant in this secondary, adjacent market (which it defined as the market for ‘online classified advertising’ services). However, it did claim that Meta was giving its marketplace an unfair advantage over other online classified advertising services (such as Gumtree, Etsy, eBay and Auto Trader) who advertise on Facebook. When those competitors purchase digital display advertising on Facebook, Meta obtains certain information about the advertisers’ products and customers which, in the CMA’s view, was exploited by Meta to develop the Facebook Marketplace in a way that would not have been possible in normal market conditions. The CMA also believed there was a risk that Meta could use this advertising data to develop or improve other competing products.
More information on the CMA’s concerns and the commitments offered by the Amazon and Meta is set out below.
|Issue||CMA's competition concerns||Amazon commitment|
|Unfair use of third-party seller data||
The CMA alleged that Amazon was taking unfair advantage of commercially sensitive data it received from third party sellers to give its own ‘Amazon Retail’ products an edge over the competition. This included using third party seller data to inform Amazon Retail’s decisions in relation to issues such as which products to sell, managing stock levels for those products and setting prices.
Amazon has agreed to keep non-public data it receives from Marketplace sellers separate from its retail arm.
This is designed to ensure that the decisions Amazon Retail makes in terms of which products to stock and how they are priced is determined independently – thereby enabling third party sellers (in theory at least) to compete fairly with Amazon Retail’s own products.
|Unfair competition for the 'Buy Box'||
While several sellers may compete to sell the same products on Amazon, over 75% of sales on the Amazon UK Marketplace are made via the ‘Buy Box’. This refers to the section on the right side of an Amazon product detail page where customers can add a product to their cart with a highly visible box that says, “Buy Now” or “Add to Cart”. Only one seller gets the benefit of this, with the winner determined by complex algorithms which are designed to reward the seller that scores highly on a range of features including price, fulfilment and seller rating. This is commonly referred to by sellers as “winning the Buy Box”.
Consumers can still choose to purchase from other sellers who are not in the Buy Box, but only if they actively scroll down and choose to click through to one of the other sellers.
The CMA alleged that Amazon’s algorithm for determining the Buy Box winner was self-preferential and discriminatory. Specifically, the CMA found that products being offered by third-party sellers were less likely to appear in the Buy Box than similar offers from either (i) Amazon Retail or (ii) third-party sellers that use Amazon’s delivery services.
According to the CMA’s data, in cases where Amazon Retail and third-party seller offers were both eligible to win the Buy Box on a product page in 2021, an offer by Amazon Retail was selected in more than 80% of cases.
Amazon have promised to apply objectively verifiable, non-discriminatory conditions and criteria to determine which offer (either from Amazon Retail or third-party sellers) will feature in the Buy Box. In particular it will not use Prime-eligibility or Prime labelling as relevant criteria for selecting the Buy Box winner.
|Restrictions on competition for fulfilment services||
Amazon UK Marketplace currently offers sellers various fulfilment options. This includes Amazon’s own ‘Fulfilment by Amazon’ shipment service and ‘Seller Fulfilled Prime’ (SFP), which gives sellers more control over fulfilment.
However, the CMA was concerned that third-party sellers that sell via SFP fulfilment are unable to independently negotiate the terms and rates offered by Amazon’s designated SFP carriers (which includes Evri and DPD). SFP sellers can only negotiate fulfilment terms directly with Royal Mail.
In practice this meant SFP sellers were often forced to accept pre-negotiated rates and commercial terms agreed between Amazon and the relevant SFP carrier.
The CMA believes this distorted competition by preventing SFP sellers from negotiating cheaper rates, which had the potential to result in higher delivery costs for consumers.
Amazon will now allow the use of independently negotiated rates between SFP carriers and sellers, provided the carrier has connected with Amazon’s systems in the appropriate manner.
Amazon will also make reasonable means available to enable interested SFP carriers to connect with Amazon’s systems, and will not use any information obtained for the purposes of Amazon’s own fulfilment operations or commercial negotiations regarding fulfilment services.
The CMA’s competition concerns and commitments offered by Meta in relation to Facebook are set out in the table below:
|Issue||CMA's competition concerns
|Unfair use of competitor data by Facebook Marketplace||
Customers who purchase digital display advertising on Facebook are required to sign-up to Meta’s standard terms and conditions, which permits Meta to use data acquired from advertisers to inform the development and improvement of Meta’s own products.
The data Meta obtains from Facebook digital display advertisers includes information about the activity of the advertiser’s customers and the products they purchased. The CMA was concerned that this included information supplied by Facebook Marketplace’s direct competitors, namely other providers of ‘online classified advertising’ (OCA) services. Other providers of OCA services include similar peer-to-peer marketplaces such as eBay, Etsy and Gumtree, as well as more specialist providers such as Auto Trader, Motors.co.uk, Rightmove and Zoopla.
It was the CMA’s case that Meta used data provided by rival OCA providers who purchased digital display advertising on Facebook to develop, improve and operate the Facebook Marketplace in ways which it would not otherwise have been able to do (thereby giving Facebook Marketplace an unfair advantage over other its competitors).
Meta has agreed to implement technical systems to prevent the use of OCA competitor advertising data in the operation of Facebook Marketplace and the development, improvement, product design, layout and functionality of Facebook Marketplace.
This technical solution will apply for digital display advertisers who have voluntarily opted out of their advertising data being used, or who have been automatically opted out by Meta (and who have not objected to this).
|Unfair terms and conditions||
The CMA’s concerns in relation to Meta’s ability to exploit data obtained from Facebook’s digital advertising customers were not limited to misuse via Facebook Marketplace.
The CMA’s concern (more generally) was that Facebook’s standard terms and conditions allow Meta to collect and use advertising data for purposes beyond what is necessary to provide digital advertising. This included the use of data that isn’t in the public domain to develop new competing Meta products, or to improve its existing products and services. The CMA pointed out that digital advertisers have little or no ability to negotiate these terms given the strength of Meta’s market position in digital display advertising. While not expressly stated in the Commitments decision, it is presumably implied that those advertisers may (in theory at least) have been able to charge for that data in normal market conditions.
Meta agreed to use all reasonable endeavours to ensure that employees working on product development refrain from using data it receives by virtue of providing digital display advertising (and its business tool service) to develop or improve Meta’s products in competition with specific products or services offered by advertisers.
Meta will also include a clear public statement in its Code of Conduct, which is a published statement of Meta’s expectations of how Meta (and all its employees) act and make decisions, that such data derived from advertisers should not be used in the development and improvement of its products in competition with those advertisers.
The fact that both cases were resolved via commitments means that to date (and with the sole exception of the fines the CMA imposed on Meta for breaching enforcement orders in the blocked Giphy merger) the CMA has still yet to impose a penalty on any of the big tech firms in the UK for breaching competition laws.
Given the fast-moving pace of digital markets, the CMA commitments decision is further indication that the CMA may be prioritising pro-competitive behavioural changes over penalties when it comes to big tech. This approach is hard-wired into the DMCC Bill, which as noted above enables the CMA to impose bespoke ex-ante conduct requirements and ‘pro-competitive interventions’ on tech firms that have SMS.
In some ways, these commitments may therefore be an early indication of what is to come when the CMA makes its first SMS designation after the DMCC Bill – although it should be stressed that the Bill still gives the CMA the power to impose huge penalties up to 10% of global turnover on SMS tech firms that breach their bespoke conduct requirements or other entered into under the Bill.
For more information on the conduct requirements that the CMA may impose on SMS firms under the DMCC Bill – read our insight here.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2023. Specific advice should be sought for specific cases. For more information see our terms & conditions.
13 November 2023