February 20, 2024

Amazon’s iRobot purchase removes formal competition concerns in the EU

European Union regulators have sent Amazon a formal statement of objections outlining competition concerns over its proposed acquisition of robot vacuum cleaner iRobot.

The move does not confirm that the EU will try to block the deal, but it shows that antitrust regulators remain concerned. It could therefore prompt Amazon to offer solutions to EU authorities to resolve the investigation and avoid the risk of the takeover being blocked.

Amazon has already cut its acquisition price for iRobot – originally an all-cash offer of $1.7 billion in August 2022 – by 15% due to the increased debt the target has taken on, while regulatory issues could prevent the deal from closing delayed the original purchase price. .

The bloc has been closely watching the Amazon-iRobot deal since July, when the EU announced its in-depth investigation. The Commission said at the time that it was concerned that the transaction would allow Amazon to limit competition in the market for robotic vacuum cleaners (RVCs) and strengthen its position as an online marketplace provider in a number of ways.

Today’s announcement by the EU, following several months of in-depth investigation into the transaction’s potential impact on competition, sets out the formal concerns that Amazon must respond to. The EU’s objections focus on foreclosure risks.

The EU says its concerns center on whether the deal will give Amazon the ability and incentive to exclude iRobot’s rivals by deploying strategies aimed at preventing competitors from selling RVCs on Amazon’s marketplace and/or make it more difficult for them to do so – such as by delisting rival products; reducing their visibility in both non-paid (i.e. organic) and paid results (i.e. advertisements) displayed on the marketplace; restricting their access to certain widgets it manages (such as the ‘other products you might like’ feature) or ‘certain commercially attractive product labels’ (for example ‘Amazon’s choice’ or ‘Works With Alexa’); and/or by directly or indirectly increasing iRobot’s rivals’ costs to advertise and sell their RVCs on the marketplace.

“Amazon could have the opportunity to foreclose iRobot’s rivals, as Amazon’s online marketplace is a particularly important channel for selling RVCs in France, Germany, Italy and Spain,” the Commission said in a press release. “RVC customers in these countries rely primarily on Amazon, both for product discovery and for their ultimate purchasing decision.”

The Commission is also concerned that Amazon may have an incentive to exclude iRobot’s rivals because it could be economically profitable to do so. “The merged entity would likely gain more from additional sales of iRobot RVCs than it would lose from fewer sales of iRobot’s rivals and other related products on Amazon. Such gains include the benefits of additional data collected from iRobot users,” it suggests.

If Amazon were to deploy such foreclosure strategies, the Commission believes at this stage of the investigation that it could limit competition in the RVC market, leading to “higher prices, lower quality and less innovation for consumers.”

The EU has moved to raise formal concerns after conducting what it describes as a “broad review to understand the market and the deal’s potential impact,” which it said also included analyzing and reviewing internal documents from Amazon and iRobot information was collected from market participants such as suppliers of RVCs and other smart home devices, as well as from providers of online sales channels.

It also says it has worked closely with other competition authorities during both the initial investigation and the in-depth investigation, adding that it will continue to do so throughout the remainder of the in-depth investigation. Although the British competition authority already approved the deal in June.

Amazon was contacted for a response to the EU statement of objections. A company spokesperson sent us this statement claiming that iRobot faces “intense competition” from other RVC suppliers:

We continue to work through the process with the European Commission and are focused at this stage on addressing its questions and any concerns identified. iRobot, which faces stiff competition from other vacuum cleaner suppliers, offers practical and inventive products. We believe Amazon can provide a company like iRobot with the resources to accelerate innovation and invest in critical features, while lowering prices for consumers.

Late last year, the EU reached a settlement with Amazon over two previous competition investigations – one investigating antitrust concerns over Amazon’s use of seller data to boost its own retail business; and a second that looked at how the company operated the “Buy Box” and its Prime loyalty program.

In those cases, Amazon agreed to a series of commitments to end the investigations – including declaring that it would stop using non-public data from its marketplace sellers and increase transparency for merchants; and promises to treat all sellers equally, regardless of whether they pay for logistics services.

Margrethe Vestager, the EU’s then competition chief, trumpeted the outcome at the time as establishing what she called “new rules for how Amazon conducts its business in Europe” – arguing that the settlement meant the e-commerce giant “ could no longer abuse its dual role” as marketplace operator and own-brand retailer; and further claiming the outcome would ensure that “competing independent retailers and carriers, as well as consumers, will benefit from these changes that provide new opportunities and choices.”

Given the commitments the EU has already secured from Amazon following those previous investigations, it is interesting to see that the bloc remains concerned about the levers the e-commerce giant still has at its disposal to potentially influence competitive outcomes in its market versus iRobot versus rival robot vacuum cleaners.

Since then, Amazon has also been named a gatekeeper under the EU’s shiny new ex ante competition regulation, the Digital Markets Act – which considers its marketplace a core platform service. This designation means that Amazon must meet a series of upfront obligations, including self-preference restrictions.

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