The Federal Trade Commission (FTC) has uncovered Amazon.com deployed a ‘Project Nessie’ algorithm to assess how much it could increase prices, which would activate competitors to copy.
The FTC’s monopoly lawsuit against the company also uncovered that the codenamed algorithm Nessie aided Amazon in boosting its profits on products across shopping categories.
Due to the company’s influence in e-commerce, competitors often increased their prices, charging consumers more. However, if they didn’t, Amazon would automatically return the prices to normal costing, according to sources familiar with the FTC case.
In an estimation of how much Amazon’s Nessie cost households, the FTC’s suggests that consumers paid out more than $1 billion in revenue through the use of the algorithm, said sources.
“The FTC’s allegations grossly mischaracterize this tool,” an Amazon spokesman said.
“Project Nessie was a project with a simple purpose—to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable. The project ran for a few years on a subset of products, but didn’t work as intended, so we scrapped it several years ago.”
Despite the algorithum being ‘scrapped’, FTC spokesman Douglas Farrar asserted that Amazon must be held accountable.
“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 are their illegal monopolistic practices,” Farrar said.
Amazon’s lawyer David Zapolsky, counters that the FTC misunderstands how online pricing and competition work.
“If they were successful in this lawsuit, the result would be anticompetitive and anti-consumer because we’d have to stop many of the things we do to offer and highlight low prices—a perverse result that would be directly opposed to the goals of antitrust law,” Zapolsky said.
Fundamental to the FTC’s case against Amazon is that the online retailer’s power over third-party sellers on its website leads to higher prices passed down to consumers, even those who buy from a competitor.
According to a recent Institute for Local Self-Reliance report, Amazon’s cut of third-party seller sales spiked from 19% to 45% between 2014 and 2023, incorporating Amazon’s fees linked to selling on the platform, advertising on it, and fulfillment of orders.
Over 60% of Amazon’s retail sales are attributed to third-party sellers.
“Amazon’s one-two punch of seller punishments and high seller fees often forces sellers to use their inflated Amazon prices as a price floor everywhere else,” the complaint said.
An Amazon merchant, Brandon Fuhrmann, said, “It’s become pay to play,” due to Amazon’s showing favouritism to merchants who advertise, merchant’s hands are forced, and they feel like they must pay for the advertisements.
Amazon’s influence and size are beneficial until it’s not for sellers.
According to Jess Nepstad, an outdoor coffee product merchant, only 40% of his sales go through Amazon because he worries about counting on the online retail giant too much.
“It’s a love-hate relationship,” he said.
“They can turn the switch on you in a blink of an eye, and you can be out of business.”
