Fears that Amazon.com Inc. (AMZN.O) may be shortchanging smaller merchants who sell on its marketplace fueled a European Union antitrust probe that could eventually pave the way for fines or an order to change its business practices.

The European Commission opened a formal investigation Wednesday into Amazon’s dual role as retailer and online platform, focusing on the potential misuse of merchants’ data. The move makes Amazon the latest target of EU competition chief Margrethe Vestager’s five-year crackdown on U.S. technology giants.

"At some point, Amazon needs to decide whether it wants to be the retailer or the rails that the sector runs on. They can’t have their cake and eat it too," said Natalie Berg, a retail analyst at NBK Retail and the author of a book on the company.

The EU suspects that Amazon could spot best-selling products and start stocking the same thing itself, essentially cherry-picking the most profitable or high-volume goods without ever taking the risks that other sellers do to find out what people buy. Amazon’s agreements with marketplace sellers allow the company to collect "competitively sensitive information" on what’s selling and how much of a product merchants might have in stock, the EU said.

‘Biggest Marketplace’

"Traders keep telling me that Amazon Retail, based on the fact that they have access to all marketplace data, can react better than individual traders," said Oliver Prothmann, president of the German association of e-commerce, BVOH. "Amazon is the biggest marketplace and the traders’ dependence on Amazon is simply enormous. I don’t know a trader for whom Amazon’s marketplace isn’t the most relevant part of their revenue."

The EU will also look at Amazon’s "buy box" that highlights which retailer offers a product. The "vast majority" of sales on marketplace come from traders, including Amazon itself, picked for the box by an algorithm. The EU will look at what factors Amazon uses for that algorithm. It could then potentially examine whether Amazon uses that information to make sure its own products win the prize spot.

Amazon said it "will cooperate fully with the European Commission and continue working hard to support businesses of all sizes and help them grow." Half of items sold on the site come from small businesses using Amazon’s marketplace and such businesses used Amazon to export goods worth more than 3 billion euros ($3.4 billion) across Europe in the past year, according to the company’s website.

‘Customers’ Experience’

Amazon has previously said it "uses data about individual sellers only to support them or enhance or protect our customers’ experience" and doesn’t allow the use of individual sellers’ data to compete with them" including decisions Amazon takes to source, price or stock items.

"Like any retailer, Amazon naturally wants its shoppers to buy its own brands because they generate greater margins and drive loyalty with customers," Berg said. "But Amazon has been arguably too aggressive in steering shoppers in the direction of their own products."

Regulators have already quizzed 1,500 retailers and received 700 gigabytes of data from Amazon in an initial early-stage investigation. That will now intensify as they try to build up a case that the company might violate antitrust rules. While these cases can lead to fines, companies can also successfully convince the EU to drop an investigation or can make changes that allow the EU end a probe without any penalties.

Shares in the Seattle-based company were down 0.5 per cent at 11:23 a.m. in New York.

Vestager Crackdown

Amazon joins an long list of U.S. technology companies targeted by Vestager in a crackdown that triggered a Twitter blast from U.S. President Donald Trump last year. She’s already slapped Google with record fines and ordered Apple Inc. to repay billions of euros in back taxes. A fine for chipmaker Qualcomm Inc. may come as soon as next week.

Vestager, a Dane who steps down in October, has rejected criticism that she’s unfairly picking on American companies. But she is clear that she sees internet platforms as a potential problem if they become data gatekeepers that can rig the game in their own favor to stomp on any potential rivals.

While it will be the first time the EU has directly targeted Amazon’s online retail business model, it’s the third time the company has been probed by the regulator, following tax and e-book investigations.

Amazon separately struck a deal with Germany and Austria to shut down antitrust probes into terms for sellers, according to statements on Wednesday. It will make changes to its business services agreement worldwide from Aug. 16 to address complaints about liability provisions, contract clauses and blocking and selling users accounts.

--With assistance from Christopher Elser and Stephanie Bodoni.