In the global race to create the best curated online marketplace (COM), every week seems to bring fresh developments that complicate the picture for enforcers and policymakers. Lawsuits and regulatory proposals to eliminate or restrain the management functions of COMs, from retail storefronts to app stores, should account for ever-evolving realities. But often, these governmental juggernauts are too far down the tracks to slow down, and the officials driving the trains have no choice but to wave inconvenient developments away as either irrelevant or unrelated. As the Federal Trade Commission (FTC) faces headwinds in its already-outdated antitrust lawsuit against Amazon, a recent Wall Street Journal article details the fierce competition between Temu and Amazon, not for consumers but for sellers. That Temu provides a meaningful alternative to Amazon’s seller services is problematic for the narrative the FTC seeks to weave in a few notable ways.

  1. Sellers generally distribute through multiple COMs. While the FTC’s claims rest on the theory that sellers are captive to Amazon’s marketplace, in reality, sellers take an “omnichannel” approach, distributing through multiple avenues depending on their needs. We have seen this in the app development space as well, as App Association members generally distribute their software via a combination of Google Play, Apple’s App Store, and the open Internet, among others. As the WSJ article notes, “Sellers who are trying Temu see it as a way to diversify from Amazon, not to replace it.” Thus, sellers may opt for the Temu platform for some of their goods while selling others through Amazon for a variety of reasons. Notably, Temu’s seller offering is differentiated from Amazon’s insofar as it does not provide a two-day fulfillment service option, although it is developing local delivery networks. Amazon’s seller services are relatively more expensive, but the two-day shipping commitment that comes with its fulfillment services makes it a far more powerful option in terms of enabling access to consumers willing to buy a seller’s goods. Moreover, Amazon’s two-day fulfillment appears to be far less expensive than other two-day options, as Amazon estimates that its service costs 70 percent less, on average, than alternative two-day shipping fulfillment options.
  2. The FTC is relying on an artificially narrow market definition. In order to succeed with an antitrust claim of monopolization, plaintiffs must generally convince a court to accept their proposed market definition. The rest of the case hangs on this determination because it is typically impossible to find a defendant liable for monopolization without also finding that it has enough power to raise prices or restrict output without fear of competitive pressure in the given antitrust market. Accordingly, plaintiffs generally propose a relatively narrow market (thus decreasing the number of supposed competitors to the defendant) in order to win, but sometimes, their recommendation flies in the face of obvious facts and circumstances. In this instance, leaving Temu and others like it out of the definition of its proposed “online superstore” market appears to be contrary to the evidence. Even though Temu’s and Amazon’s offerings differ, and sellers often use both, they clearly compete aggressively with one another for sellers. As the WSJ article describes, “Temu has been splurging on advertising and is trying to scout popular Amazon brands.” Similarly, Temu has begun featuring products from local warehouses to compete directly with Amazon’s fast-shipping commitment, while Amazon is eyeing a new storefront dedicated to bargain-priced items, an area where Temu thrives. We detailed a similar punch-counterpunch competitive dynamic between the Google Play store and Apple’s App Store to help illustrate that the COMs themselves compete with each other. Contrary to antitrust plaintiffs’ allegations, they are not separate markets because they compete directly with one another, and the same is true in the Temu-Amazon context. The Temu-Amazon moves and countermeasures necessitate significant investments, illustrating that competition between the two COMs is not just theoretical but worth spending resources on in the eyes of executives at the companies. For Temu’s part, experts expect their investments to succeed and that their U.S. e-commerce market share will triple in the next year.
  3. If the FTC wins, China does too. Despite that Temu’s competition with Amazon seems to benefit sellers as consumers of COM services, handing it a competitive advantage by diminishing Amazon’s COM management flexibility would benefit China to American consumers’ detriment. Temu’s ownership entity, PDD Holdings, has a deplorable record on trustworthy business practices. Not only is it known to have spied on millions of consumers by exploiting a zero-day vulnerability on Android devices, but the broader scope of PDD’s questionable conduct recently caught the House Intelligence Committee’s investigative eye as well. Mandating that Amazon cede its two-day shipping advantage, which consumers love, while prohibiting low-price guarantees on the platform, would declare Temu the winner on these important competitive dimensions, even though it provides by most measures a worse—albeit cheaper—product. Amid rising tension and economic competition with China—not to mention lots of scrutiny on PDD itself—it is hard to explain how herding American consumers away from the U.S.-based market leader and onto a Chinese platform that is eager to spy on them is serving an important antitrust goal.

Fundamentally, enforcers and policymakers seeking to mandate competition-by-fiat onto individual COMs, such as app stores and retail marketplaces, miss that sellers and app developers choose carefully between their distribution options precisely because of COM management practices—not in spite of them. The Temu example further illuminates another truth that these officials want courts and voters to ignore: that cheaper options may exist, but businesses and consumers often want the higher quality option, even if it costs just a little more.