A redacted segment of the FTC’s monopoly lawsuit against Amazon alleges that the tech giant utilized a confidential pricing algorithm, enabling the company to gauge how much it could increase prices before competitors refrained from doing so.
In September, the FTC lodged an extensive 172-page antitrust lawsuit against Amazon after a thorough four-year investigation. The allegations assert that Amazon has detrimentally affected the general public and businesses due to anti-competitive policies and behaviors. These actions encompass prioritizing its own products in search results and imposing higher fees on sellers unless they commit to selling exclusively on Amazon. Additionally, it is claimed that Amazon penalizes sellers who offer discounts on products outside the Amazon marketplace by suppressing their visibility in search results. The Commission contends that these practices have resulted in escalated prices for consumers.
Project Nessie: Amazon’s Secretive Pricing Algorithm
In the complaint, a significantly redacted section hints at the development and deployment of an undisclosed algorithm, cryptically referred to as Project Nessie, within the confines of Amazon. Sources from the Wall Street Journal shed light on this clandestine initiative, illuminating its primary objective: optimizing Amazon’s profitability through strategic price adjustments on various items, all the while vigilantly monitoring competitors’ pricing strategies.
Project Nessie’s sophisticated design allowed for a dynamic interplay between pricing and competition. When major competitors, such as Target, chose not to augment their prices, the algorithm swiftly restored Amazon’s item prices to their original levels. It was a nuanced dance of market intelligence and strategy aimed at maintaining a competitive edge while maximizing revenues.
Furthermore, this algorithmic marvel exhibited versatility in its operations. Whenever competing companies slashed prices during sales or promotional events, Project Nessie swung into action, recalibrating Amazon’s pricing to reflect these changes. Post-sales, the algorithm ensured that Amazon’s prices remained attractive and competitive, further entrenching the company’s position in the market.
Project Nessie was more than a mere tool; it was a dynamic force that orchestrated Amazon’s pricing strategy, ensuring the company’s competitiveness in the ever-evolving retail landscape.
Project Nessie was purportedly instrumental in aiding Amazon in recovering funds and boosting profitability until its discontinuation in 2019. According to a source familiar with the situation, Amazon generated revenue exceeding $1 billion through the utilization of this algorithm.
Amazon and FTC Perspectives
The FTC informed The Register that redactions are a common practice when cases involve undisclosed information. Furthermore, Amazon has a 14-day window from when the information is sealed to provide reasoning as to why the data should remain undisclosed.
FTC spokesperson Douglas Farrar told the Journal, “We once again call on Amazon to move swiftly to remove the redactions and allow the American public to see the full scope of what we allege is their illegal monopolistic practices.”
Project Nessie stands as a pivotal focal point in the Federal Trade Commission’s (FTC) argument, underscoring their belief that Amazon’s dominant market position has translated into escalated prices for consumer goods within the retail sector. According to the Commission, the algorithm driving Project Nessie is primarily geared towards stifling competition, allegedly devoid of any valid or justifiable rationale.
However, Amazon vehemently disputes the FTC’s portrayal of the algorithm’s intent. They clarify that Project Nessie was meticulously crafted with a distinct objective in mind—to curtail price-matching endeavors that led to abnormally low and unsustainable prices in the market. This initiative was initially implemented on a subset of products over a span of several years. Regrettably, it failed to yield the desired results, prompting Amazon to discontinue the project.
Amazon asserts that the underlying purpose of Project Nessie was to maintain a sustainable pricing model that ensured fairness and viability within the competitive landscape. Despite its discontinuation due to inefficacy, the intention behind the project was grounded in the goal of striking a balance between healthy competition and reasonable pricing for consumers.
