Last week, the Federal Trade Commission sued Amazon, accusing the online retailer of illegally maintaining a monopoly. Most of them FTC’s complaint against Amazon was redacted, but The Wall Street Journal yesterday appeared key details that are missing in a complaint about a secret algorithm. The FTC alleged that Amazon once used an algorithm to raise prices across the most popular online shopping sites.
People familiar with the FTC’s allegations in the complaint told the Journal that it all started when Amazon developed an algorithm code-named “Project Nessie.” It allegedly works by manipulating competitors’ weak pricing algorithms and locking competitors into high prices. The controversial algorithm has allegedly been used for years and helped Amazon to “improve its profits on items across shopping categories” and “force competitors to raise their prices and charge customers more,” the WSJ reported.
The FTC complaint states:
Amazon uses its surveillance network to prevent price competition by finding and blocking discounts, simply raising prices on and off Amazon, and allowing potential rivals to gain scale by offering lower prices.
The FTC complaint redacted this statement, but sources told the WSJ that Amazon made “more than $1 billion in revenue” using Project Nessie, while competitors learned that “the financial costs did not result in a share or Larger market size, only lower margins,” the FTC’s complaint said.
“As a result, Amazon has successfully taught its competitors that lower prices are unlikely to lead to increased sales—the opposite of what should happen in a well-functioning marketplace,” the FTC alleged.
Amazon stopped using the algorithm in 2019—for no apparent reason, sources told the WSJ.
FTC spokesman Douglas Farrar told the WSJ that the agency wants public access to the redacted information in the complaint and continues to “call on Amazon to move quickly to withdraw the redactions and allow the American public to see the full scope of what accused of being them. illegal monopolistic practices.”
Amazon did not respond to Ars’ request for comment.
In a blog Responding to the FTC’s lawsuit, David Zapolsky-Amazon’s senior vice president of global public policy and general-wrote that the FTC essentially misunderstand how retail products work. Zapolsky said that “matching the lower prices offered by other retailers” does not “somehow” lead “to higher prices.”
“That’s not how competition works,” Zapolsky wrote. “The FTC has it backwards and if they succeed in this case, the result will be unfair and anti-consumer because we will have to stop many of the things we do to offer and demonstrate low prices — a very unfair result that would be . directly against the goals of antitrust law.
According to the FTC complaint, “Amazon knows the importance of maintaining that it has lower prices than competitors,” but Amazon designed Project Nessie specifically “to prevent other online stores from offering lower prices than Amazon is gone.”
In a Press releaseThe FTC confirmed that it intends to prove that Amazon is “competitive on price,” among other alleged consumer harms.
“Amazon’s remote plans affect hundreds of billions of dollars in retail sales every year, affect hundreds of products sold by businesses large and small, and affect hundreds of millions of consumers,” the FTC press release said.
“Never in the history of US antitrust law has one case had the power to do so much good for so many people,” John Newman, deputy director of the FTC’s Competition Bureau, said.