The European Union's competition commissioner, Margrethe Vestager, is launching a formal investigation into Amazon.

The investigation is set to examine whether Amazon's use of data from the independent retailers that sell on its marketplace is in breach of EU competition rules.

Amazon's role as both a platform for merchants and a seller on that same platform has become one of the most contentious areas of the business.

If Amazon is found to have breached EU competition laws, it could face a fine of up to $23 billion.

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The European Union is cracking down on Amazon.

On Wednesday, the European Commission announced that it would launch a formal investigation into Amazon. Reports of this investigation first surfaced Tuesday.

The investigation is set to examine whether Amazon's use of data from the independent retailers that sell on its marketplace is in breach of EU competition rules. Amazon could be fined as much as $23 billion if it broke laws.

Amazon's role as both a platform for merchants and a seller on that same platform has become one of the most contentious areas of the business.

Competition Commissioner Margrethe Vestager, who is leading the investigation, said in a statement on Wednesday that she would be taking a "very close look" at Amazon's "dual role." The main concern for regulators is whether the company is so dominant that it's impossible for others to compete.

"We need to ensure that large online platforms don't eliminate these benefits through anticompetitive behavior," she said. "I have therefore decided to take a very close look at Amazon's business practices and its dual role as marketplace and retailer, to assess its compliance with EU competition rules."

In a statement emailed to Business Insider, Amazon said it will "cooperate fully with the European Commission and continue working hard to support businesses of all sizes and help them grow."

Amazon CEO Jeff Bezos. Getty

Vestager's team began preliminary work on an Amazon investigation last year. "Amazon appears to use competitively sensitive information — about marketplace sellers, their products, and transactions on the marketplace," the European Commission said this week.

Read more: The EU is now going after Amazon after slapping Google and Apple with giant fines

"The Commission will focus on whether and how the use of accumulated marketplace seller data by Amazon as a retailer affects competition," it added. Specifically, it will examine:

The agreements between Amazon and its marketplace sellers allowing Amazon to analyze and use third-party seller data and specifically whether Amazon's use of this data affects competition.

How Amazon selects retailers for its "Buy Box" feature — the "add to cart" button that allows customers to directly add an item to their shopping cart. "Winning" the Buy Box is key for marketplace sellers, the commission said, as the majority of transactions are done through this.

$23 billion fine on the table

If Amazon is found to have breached EU competition laws, the company could be fined up to 10% of its annual revenue. Amazon's total sales stood at $233 billion last year, meaning a fine of $23 billion is possible.

Vestager is known for being a formidable force when it comes to scrutinizing big tech. Since taking on the role of EU commissioner for competition in 2014 she has taken action against Apple, Amazon, Facebook, and Google among others.

In July 2018, she fined Google $5 billion for anticompetitive practices related to its Android operating system, and in 2017 Amazon was forced to pay Europe €250 million, or $280 million, in unpaid back taxes.

Investigating Amazon would be one of Vestager's final acts before her five-year term ends, though she has indicated interest in serving for another five years.

It's not just the EU that's interested in Amazon's use of data. Vox reported that the US Federal Trade Commission had also started questioning some of Amazon's rivals about some of its business practices including how it competes with its third-party sellers.

On Tuesday, at a hearing with the House Judiciary subcommittee on antitrust, an Amazon executive strongly denied that Amazon used data from its third-party merchants to determine which new products to create.