Amazon created a secret algorithm that helped the e-commerce giant generate an extra $1 billion dollars, the U.S. Federal Trade Commission (FTC) alleged in a new court filing on Nov. 2.
According to the new, less redacted complaint, Amazon allegedly deployed a secret algorithm, internally known as “Project Nessie,” that raised the prices of items on its online store and, in turn, across the market accordingly.
Knowing that many websites set their prices to match Amazon’s, the company allegedly developed Nessie to increase prices on products that other retailers would follow.
After outside retailers began matching or increasing their own prices, Amazon would continue to sell the product at an inflated price, the FTC alleged, which resulted in $1 billion in excess profit.
The FTC accused Amazon of turning on and off Project Nessie to avoid scrutiny.
“Project Nessie generated enormous profits for Amazon even though its higher prices caused Amazon’s unit sales to decrease. In 2015, for example, Project Nessie’s higher prices reduced Amazon’s gross sales revenue while increasing Amazon’s profits on those reduced sales by an extra $363 million. In 2018, Amazon estimated that Project Nessie increased Amazon’s yearly profits by $334 million.”
The FTC called the algorithm an “unfair method of competition” because it manipulates other online stores into raising prices, allowing Amazon to do the same.
“The sole purpose of Project Nessie was to further hike consumer prices by manipulating other online stores into raising their prices,” the FTC alleged.
The Epoch Times reached out to Amazon for comment but received none by press time.
“Nessie was used to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable,” Mr. Doyle said.
According to the regulator, Amazon claims that it has currently paused the project, but the company can turn it on at any time, as last year, fearing inflation could hurt Amazon’s profitability, Doug Herrington, CEO of Worldwide Amazon Stores, allegedly asked to turn on the company’s “old friend Nessie, perhaps with some new targeting logic” to boost profits for Amazon’s retail unit.
‘Anti-Discounting Tactics’ and Pushing Junk Ads
The agency accused Amazon of using a variety of “anti-discounting tactics to prevent rivals from growing by offering lower prices” and of using “coercive tactics,” particularly with its order fulfillment service, to prevent competitors from achieving the necessary scale to compete effectively.“When Amazon detects elsewhere online a product that is cheaper than a seller’s offer for the same product on Amazon, Amazon punishes that seller. It does so to prevent rivals from gaining business by offering shoppers or sellers lower prices,” the complaint reads.
The FTC also alleged that under then-CEO Jeff Bezos’s direction, the company flooded its online store with “pay-to-play advertisements” and “irrelevant junk ads” despite knowing that these junk ads were “defects.”
The FTC alleged that Amazon executives know that the practice creates “harm to consumers” by displaying less relevant search results.
Targeting Sellers
Amazon also required sellers under the company’s Prime feature to use its logistics and delivery services even though many would prefer to use a cheaper service or one that would also service customers from other platforms where they sell, according to the FTC.The FTC alleged that an unnamed Amazon executive who headed global fulfillment realized that letting sellers be on Prime without using Fulfillment by Amazon was “fundamentally weakening (Amazon’s) competitive advantage” by encouraging sellers “to run their own warehouses.”
