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

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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 Doyle described Nessie as an outdated pricing tool that the FTC is grossly misrepresenting.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

More about Amazon antitrust investigation

• FTC’s Legal Complaint Against Amazon
• Amazon’s Response to Allegations
• Project Nessie and Its Implications
• FTC vs. Big Tech
• Fulfillment by Amazon (FBA) and Antitrust Concerns