Amazon’s secret pricing scheme made it an extra $1 billion, FTC says

Amazon’s secret pricing scheme made it an extra $1 billion, FTC says

Amazon’s secret pricing algorithm, codenamed “Project Nessie,” may have generated the company more than $1 billion in extra profits, according to new details released Thursday from the Federal Trade Commission’s antitrust case against the e-commerce giant. 

In September, the FTC and more than a dozen state attorneys general sued Amazon, claiming that the company operates an illegal monopoly. Among other claims, the complaint says that Amazon buried listings offered at lower prices from other retailers and charged sellers steep fees in order to inflate product prices. 

The existence of Project Nessie was first revealed in a previously redacted version of the complaint. Nessie was allegedly an algorithm that would increase the price of products on Amazon and monitor whether other retailers, like Target, would follow suit. If they didn’t, the algorithm would revert the Amazon listing to its original price. 

Amazon reportedly stopped using Nessie in 2019, but the FTC alleges that the company “has repeatedly considered turning it back on.” 

These details were blacked out of the original case and partially reported by The Wall Street Journal. On Thursday, a new version of the lawsuit was released with fewer redactions, providing the public with more insight into the FTC’s arguments and evidence.

“The FTC claims that an old Amazon pricing algorithm called Nessie is an unfair method of competition that led to raised prices for consumers,” Tim Doyle, Amazon spokesman, said in a statement responding to the new Nessie information Thursday. “This grossly mischaracterizes this tool. Nessie was used to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable.”

This includes allegations outside of Project Nessie. According to the less-redacted complaint, the FTC alleges that Amazon founder Jeff Bezos directed company executives to accept “junk” ads as a means of extracting “billions of dollars through increased advertising despite worsening its services for customers.” 

Responding to this, Doyle said that the shopping experience of Amazon’s customers is “consistently positive” and pointed to a study claiming that the company’s ads are the most relevant in the world.

The company’s Prime membership program has come under scrutiny by the FTC as well. In the new complaint, the FTC says that Amazon had multiple opportunities to fix flaws in Prime’s signup system “and instead continued to trick more users into signing up” for the service.

Updated November 2nd, 2023 at 2:50PM ET: Added comments from Amazon spokesman Tim Doyle.

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