Amazon made $1 billion from a secret algorithm to raise prices – News

Amazon made $1 billion from a secret algorithm to raise prices – News
Amazon made $1 billion from a secret algorithm to raise prices – News
-- has used a series of illegal strategies to increase the profits of its online commerce empire.

Among them was an algorithm that raised prices paid by US households by a total of more than $1 billion, according to documents in a new lawsuit filed by the US Federal Trade Commission (FTC).

The FTC filed the suit in September, but many of the details were not public until this week, when a new version of the court documents was released by the District Court in Seattle.

Amazon, which offers 1 billion items in its online store, created a “secret algorithm that was known internally as ‘Project Nessie.’

He found specific products for which he predicted that if Amazon raised prices, those increases would be followed by other online stores. “Amazon used Project Nessie to take over $1 billion directly out of the pockets of Americans,” the FTC said.

Amazon spokesman Tim Doyle said the FTC “grossly mischaracterizes” the pricing tool and that the company stopped using it several years ago.

“Nessie was used as an attempt to prevent cases where our price matching caused them to fall so low that they were unsustainable,” Doyle said.

Amazon began testing the algorithm in 2010 to see if other online retailers were following its prices and raising prices on products likely to be followed by competitors, the complaint said.

After outside merchants began matching or raising their prices, Amazon continued to sell the products at the inflated prices, the FTC alleged, resulting in more than $1 billion in additional profits.

Amazon shut down the algorithm during the Prime Day campaign and around the holidays, when the company receives more media and customer attention, the FTC said.

“After public attention was diverted, Amazon reactivated Project Nessie and used it on a larger scale to make up for the time it had been disabled,” the lawsuit said.

In April 2018, Amazon used the tool to determine the prices of more than 8 million items purchased by customers that totaled nearly $194 million before shutting it down in 2019.

In January 2022, Amazon’s head of retail Doug Herrington was interested in using “old friend Nessie, perhaps with new targeting logic” to boost the profits of Amazon’s retail division, the lawsuits said. documents.

The FTC describes the Nessie algorithm as an “unfair method of competition” because it manipulates other online stores into raising their prices, allowing Amazon to do the same.

The FTC’s complaint also accused Amazon of trying to hide information about its business from antitrust authorities by using chat app Signal’s functionality to make messages disappear and allegedly destroying its communications between June 2019 and early 2022

Amazon also required sellers using its Prime subscription service to use its logistics services, although many preferred to use cheaper services or ones that also served customers on other platforms through which they sold their goods, according to FTC.

Amazon’s average fee for sellers who used its services to fulfill orders rose from 27% in 2014 to 39.5% in 2018, the FTC said.

In another complaint, the FTC noted that Amazon does not allow other large online stores, such as, to sell through its platform. When asked why Amazon treats differently than smaller sellers, Jeff Bezos said it was “because of the scale, the competitive situation, etc.”

A portion of the documents, which remains heavily redacted, alleges that Amazon prevented Walmart in 2017 from offering discounts to its online customers who picked up their orders at the chain’s stores. Walmart declined to comment.

The complaint cites an Amazon seller who adopted the practice of “being absolutely certain that his products are not priced lower at Walmart than at Amazon” because of pressure from Amazon.

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