Coinspeaker
Amazon Reportedly Used Secret Algorithm to Raise Prices
E-commerce giant Amazon is facing allegations of employing a covert algorithm to manipulate prices, which influenced competitors to charge customers more, The Wall Street Journal reported Tuesday, citing redacted court records.
The company came under scrutiny from the US Federal Trade Commission (FTC) last month when the agency filed a lawsuit against Amazon, accusing it of violating antitrust laws.
Unfair Method of Competition
In the lawsuit, the agency responsible for safeguarding consumers and enforcing civil antitrust laws contends that the company’s use of the software named “Project Nessie” to raise prices constitutes an “unfair method of competition.”
While substantial portions of the lawsuit remain redacted, the WSJ obtained an unredacted version, shedding light on the inner workings of Project Nessie.
According to the report, the algorithm was designed to determine how much Amazon could increase prices and compel competitors to follow suit. However, if competitors did not adjust their prices accordingly, the software would automatically revert the company’s prices to their original levels.
A source familiar with the matter stated that the secret software enabled the e-commerce company to enhance its profitability across various shopping categories. The software also allowed Amazon to match sales offered by competitors. Even after competitors ended their promotions, the company could maintain lower prices by continuing to match its rivals.
Amazon generated approximately $1 billion in revenue using “Project Nessie” before discontinuing it in 2019.
Amazon Under FTC Scrutiny Over Antitrust Violations
The FTC’s complaint is part of a broader investigation into Amazon’s alleged antitrust violations. The agency accused the company of employing various tactics to maintain its dominance in the e-commerce industry, including undermining competitors and discouraging sellers from offering lower prices on rival platforms.
Lina Khan, the FTC chair, stated in a release last month that the lawsuit exposed how Amazon had been exploiting its dominance in the market to enrich itself.
“The complaint sets forth detailed allegations noting how Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading services for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them,” claimed she.
Amazon Responds to the FTC Lawsuit
In response to the suit, Amazon defended its practices, asserting that the FTC was “wrong on the facts and the law, and we look forward to making that case in court.”
The company’s lawyer, David Zapolsky, stated last week that Project Nessie aimed to prevent unsustainable price drops resulting from price matching. He also argued that the lawsuit’s success would ultimately harm consumers by limiting the company’s ability to offer low prices and foster competition.
“If they were successful in this lawsuit, the result would be anticompetitive and anti-consumer because we’d have to stop many of the things we do to offer and highlight low prices—a perverse result that would be directly opposed to the goals of antitrust law,” Zapolsky said.
Meanwhile, the FTC has called for the removal of redactions in the complaint to provide transparency to the American public regarding the alleged monopolistic practices.
“We are once again calling on Amazon to move swiftly to remove the redactions and allow the American public to see the full scope of what we allege are their illegal monopolistic practices,” FTC spokesperson Douglas Farrar told the WSJ.
