Fulfillment by Amazon as a Strategic Lever: Anticompetitive or Welfare Enhancing?

The FTC alleges that Fulfillment by Amazon discourages seller multihoming and weakens rival plat- forms; Amazon counters that it improves logistics and benefits consumers. We model an Amazon-like dominant platform and a rival: platforms with proprietary fulfillment set fulfillment fees, and a represen- tative seller sets prices, thereby choosing which platform(s) to sell through. We compare three fulfillment configurations: both platforms use third-party logistics (3PL), only the dominant platform offers pro- prietary fulfillment, or both do, with the dominant platform retaining a quality advantage. When only the dominant platform offers fulfillment, a small quality advantage leaves the seller multihoming, and intense competition can push the dominant platform’s fee below 3PL rates. With a large advantage, the seller single-homes (selling only through the dominant platform) even at the platform’s unconstrained profit-maximizing fee. With a moderate advantage, the dominant platform induces single-homing by cutting its fee below that level, a form of limit pricing we call strategic foreclosure. Yet consumers still gain relative to 3PL: foreclosure succeeds only by combining superior service with restrained fees. Con- sumers can lose only when the advantage is small. With the rival also offering fulfillment, the dominant platform needs a larger advantage to induce single-homing, making multihoming more likely. Consumers gain most where rival fulfillment prevents single-homing; where the seller would multihome anyway, it can hurt consumers if the dominant platform’s advantage is small. These results separate market structure from consumer harm: seller single-homing, rival exclusion, and low fulfillment fees do not by themselves establish consumer harm or exclusionary conduct.