FTC Reveals Amazon’s Alleged Illegal Strategies, Including a Secret Pricing Algorithm, in Billion-Dollar Profit Boost
In a new court filing, the U.S. Federal Trade Commission (FTC) has disclosed several alleged illegal strategies employed by Amazon.com to enhance its online retail profits. The filing, initially submitted in September, revealed additional details on Thursday, shedding light on the inner workings of Amazon’s pricing tactics.
Amazon is accused of utilizing a confidential algorithm known as ‘Project Nessie’ to identify specific products for which it anticipated other online retailers would follow Amazon’s price increases. The FTC alleges that Amazon used this algorithm to extract over $1 billion from U.S. households. Amazon’s spokesperson, Tim Doyle, has refuted these claims, stating that the FTC has “grossly mischaracterized” the pricing tool and that the company discontinued its use several years ago. According to Doyle, Nessie aimed to prevent price matching from driving prices so low that they became unsustainable.
The pricing algorithm was initially tested in 2010 to assess whether other online retailers monitored Amazon’s prices. It aimed to raise prices for products that were likely to be tracked by competitors. When outside retailers matched or increased their prices in response, Amazon purportedly continued selling the products at inflated prices, resulting in $1 billion in excess profits.
The FTC lawsuit further alleges that Amazon temporarily paused the algorithm during high-profile events like Prime Day and the holiday shopping season, only to reactivate it when public attention waned.
In addition to these claims, the FTC asserts that Amazon sought to conceal operational information from antitrust authorities by using the Signal messaging app’s disappearing message feature and destroying communications between June 2019 and early 2022.
Furthermore, the FTC contends that Amazon forced sellers under its Prime feature to use the company’s logistics and delivery services, despite many preferring cheaper alternatives. The FTC claims that an unnamed Amazon executive expressed concern about weakening Amazon’s competitive advantage by allowing sellers to operate their own warehouses.
Amazon’s fees for sellers who utilized its fulfillment services reportedly increased from 27% in 2014 to 39.5% in 2018, according to the FTC.
The complaint also highlights Amazon’s differential treatment of large online stores like Walmart.com, which are not allowed to sell on Amazon’s platform. Amazon CEO Jeff Bezos cited scale and competitive factors for this distinction during a deposition.
In a redacted section of the lawsuit, Amazon is alleged to have deterred Walmart from offering discounts to online shoppers who picked up their purchases from Walmart stores in 2017.
These revelations shed new light on Amazon’s pricing and competition strategies, raising significant questions about its practices in the e-commerce sector.
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