FRANKFURT (Reuters) – Germany’s antitrust watchdog accused Amazon of undermining competition when dealing with third-party merchants and said it would impose reform unless the Internet retailer changed its rules, a German newspaper reported.

“Luckily, we have instruments of torture, which we will use if necessary,” Andreas Mundt, the president of the German cartel office, was quoted as telling daily Sueddeutsche Zeitung.

A struggle with competition authorities in its second-largest market after the United States would add to Amazon’s woes.

Its German operations have been rattled by a dispute over employees’ pay and a trade union has warned that staff could strike during the Christmas holiday season.

“The terms of Amazon’s Marketplace in effect obstruct competition,” Mundt said, according to a pre-release on Sunday of the newspaper’s Monday edition.

“We are in talks with Amazon to eliminate these impediments to competition…If necessary, we will issue a crystal clear decree.”

Separately, Amazon has been criticized over its tax payments and leading policy makers have called for a new German government to crack down on tax avoidance by multinational firms without waiting for its European partners to act.

At the heart of the watchdog’s complaints about Amazon’s Marketplace is a requirement that third-party merchants must offer their cheapest price when selling their products over the platform.

Amazon was not immediately available for comment.

(Reporting by Arno Schuetze; Editing by David Cowell)