Amazon used an algorithm to essentially raise prices on other sites, the FTC says

by Sophia Chen
Amazon antitrust investigation

The Federal Trade Commission (FTC) has accused Amazon of employing a covert algorithm to artificially elevate prices across various online platforms while simultaneously engaging in the obstruction of an ongoing antitrust probe by erasing internal communications. According to the latest unsealed sections of the FTC’s legal complaint, Amazon orchestrated the deletion of vital communications by utilizing a self-destructing message feature in the messaging application Signal. This action, the FTC asserts, led to the loss of over two years of correspondence from June 2019 until early 2022, in direct contradiction to the directives given to Amazon.

Tim Doyle, a representative for Amazon, rejected the FTC’s allegations as unfounded and careless. Doyle asserted that Amazon had openly acknowledged its employees’ use of Signal, had diligently compiled Signal messages, and permitted FTC staff to review those messages, regardless of their relevance to the investigation.

In September, the FTC, along with 17 states, initiated legal action against Amazon, claiming the corporation was exploiting its market dominance to artificially inflate prices both within and beyond its platform, impose excessive fees on sellers, and suppress competition. Amazon is charged with breaching both federal and state antitrust statutes. However, Amazon has vigorously defended its business methods.

This lawsuit represents the federal government’s most assertive stance against Amazon’s market influence to date, reflecting the FTC’s broader strategy to challenge major tech entities.

Further details emerged from the newly public sections of the lawsuit concerning a pricing algorithm previously reported on by The Wall Street Journal and ex-Vox reporter Jason Del Ray. Dubbed “Project Nessie,” the algorithm was implemented by Amazon to identify products that could yield higher profits through price increases, which other retailers would then emulate. The FTC alleges that this strategy, which involved activating and deactivating Nessie various times from 2015 to 2019, resulted in over $1 billion in undue profits for Amazon.

Despite Amazon’s claims that Nessie is dormant, there is evidence suggesting the company considered conducting tests to enhance the algorithm’s performance in 2020 and 2021. Doyle described Nessie as an outdated pricing tool that the FTC is grossly misrepresenting. According to Doyle, its purpose was to prevent price-matching practices from producing unsustainably low prices and was discontinued due to its ineffectiveness.

The lawsuit also offers a closer look at Amazon’s advertising practices, alleging that former CEO Jeff Bezos directed the acceptance of more low-quality advertisements, known internally as “defects,” to boost advertising revenue, even though this was detrimental to customer experience. Amazon contests this depiction, labeling it as highly misleading.

Furthermore, the FTC alleges Amazon coerced sellers into using its Fulfillment by Amazon (FBA) service. In 2019, Amazon purportedly acted against a program that allowed sellers to earn a Prime badge without using FBA, citing a decline in service quality. Yet, the FTC notes that in 2018, over 95% of the sellers on this program were meeting Amazon’s delivery time standards. In response, NetChoice, an industry group supporting Amazon, and Doyle argue that the delivery estimates in question were set by the sellers, not Amazon, and that non-FBA users were underperforming compared to those enrolled in FBA.

Amidst regulatory scrutiny, Amazon recently reopened enrollment to the non-FBA Prime badge program.

Frequently Asked Questions (FAQs) about Amazon antitrust investigation

What is Amazon accused of by the FTC?

Amazon is accused by the FTC of using a covert algorithm, referred to as “Project Nessie,” to artificially raise prices on its own and other online retail sites. The FTC also claims Amazon destroyed important internal communications that were relevant to an antitrust investigation.

How did Amazon allegedly obstruct the FTC’s investigation?

Amazon allegedly obstructed the investigation by erasing over two years’ worth of internal communications. This was purportedly achieved through the use of the disappearing message feature on the Signal app, which was against the instructions provided by the FTC.

What has been Amazon’s response to the FTC’s allegations?

Amazon has staunchly denied the allegations. Tim Doyle, a spokesperson for Amazon, described the FTC’s claims as “baseless and irresponsible.” He stated that Amazon had been forthcoming about its employees’ use of Signal, had gathered the messages, and provided them for the FTC’s review.

What are the broader implications of the FTC’s lawsuit against Amazon?

The lawsuit signifies the federal government’s most assertive action yet against Amazon’s market dominance, indicating the FTC’s increased readiness to confront large tech companies on antitrust issues.

Has Amazon admitted to using the pricing algorithm known as “Project Nessie”?

Amazon acknowledges the existence of the pricing algorithm but disputes its characterization by the FTC. Doyle, Amazon’s representative, contends that the algorithm was an older pricing model used to prevent unsustainable price reductions due to price matching and that it was discontinued when it didn’t function as intended.

More about Amazon antitrust investigation

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MarketWatchDude November 3, 2023 - 2:44 pm

Amazon defending themselves so hard, they must know that if the FTC wins it could set a huge precedent, really interesting to see how this will play out.

Jeffry204 November 3, 2023 - 9:19 pm

Wow, this whole Amazon thing is wild! Can’t believe they would just delete messages like that, isn’t there some kind of backup for this stuff?

EconGirl101 November 3, 2023 - 10:57 pm

looks like the feds are really cracking down on big tech. its about time companies like Amazon got a closer look for antitrust stuff.

TechSavvyBlogger November 4, 2023 - 12:41 am

i read about project Nessie before, but didn’t think it was this serious. Amazon’s always been ahead with algorithms, but this could be a game-changer if the FTC’s right.


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