Amazon, Mercado Libre Could Limit Competition: COFECE

The Federal Economic Competition Commission (COFECE) has preliminarily determined that retail e-commerce marketplaces in Mexico offer no conditions for effective competition, significantly impacting sellers and buyers. COFECE adds that e-commerce giants Amazon and Mercado Libre concentrate most of the market, barring the way for new entrants.  

COFECE’s Investigating Authority published the results in the Official Gazette of the Federation (DOF) and proposed several measures to correct these anti-competitive effects. In the preliminary document, COFECE highlights that Amazon and Mercado Libre dominate the economic landscape, holding an 85% share of sales and transactions. 

In 2022, Amazon surpassed FedEx and UPS in-home package deliveries in the United States. This shift occurred after Amazon expanded its logistics operations, relying on tightly controlled third-party contractors.

COFECE's preliminary determination stems from several factors observed within these marketplaces, including: high concentration; network effects, as the value of services increases as more people use them, creating a scenario where larger platforms enjoy inherent advantages: and barriers to entry into the market caused by the large investments required to develop, advertise, and market new platforms.

The commission identified within this context three potential barriers to competition:

1. Artificiality in loyalty programs: Amazon and Mercado Libre include services like streaming in their loyalty programs, artificially influencing buyer behavior. 

2. Lack of transparency in offer management: Marketplaces use algorithms to manage offers, but a lack of transparency in this process could undermine efficient market functioning. This lack of transparency affects both the sellers' ability to compete effectively and the overall competitiveness of the market. 

3. Preference for proprietary logistics solutions: There is a correlation between a seller's product positioning and the adoption of fulfillment programs offered by these platforms. Thus, sellers are constrained in choosing a logistics provider based on their specific needs. Additionally, Amazon and Mercado Libre give preferential treatment to products from sellers who use their fulfillment services. They encourage sellers to opt for their services by offering perks such as "Prime" or "Full" distinctions. These distinctions boost visibility.

To address these barriers, COFECE proposes some corrective measures. First, COFECE directs Amazon and Mercado Libre to disassociate streaming services, as well as any other services unrelated to marketplace use, from their memberships and loyalty programs. Additionally, they are ordered to cease promoting streaming services and other unrelated services within their respective marketplaces.

COFECE also orders Amazon and Mercado Libre to take all necessary and sufficient actions to ensure that sellers can find comprehensive information about the variables and weighting factors they consider in selecting the featured offer. The commission also urges these platforms to modify the criteria so that contracting logistic solutions with a specific agent is not considered a variable or weighting factor. Instead, logistic solutions should be determined based on efficiency and performance criteria according to each economic agent's strategy.

The commission also asks Amazon and Mercado Libre to enhance transparency in their logistics service standards, allowing interested logistic companies to integrate into the platform through their respective APIs and facilitating the effective offering of logistic services on the marketplace. Finally, it asks the platforms to modify the criteria for assigning the "Prime" or "Full" label so they are not exclusively or preferentially assigned to sellers who contract logistic services from Amazon and Mercado Libre, respectively. 

If the preliminary report's findings are confirmed, the Plenary could issue orders to economic agents to remove barriers to free and market competition, issuing the case's final resolution.

Amazon is being sued in the United States for allegedly directing millions of shoppers toward more expensive items, violating consumer protection laws. The complaint accuses Amazon of prioritizing higher-priced options with faster delivery times, effectively concealing lower-priced alternatives and targeting Amazon's practice of favoring higher-priced items from third-party sellers participating in its Fulfillment By Amazon program. The algorithm allegedly prompts nearly 98% of shoppers to select Amazon's choices, leading consumers to believe they are getting the best prices.