The e-commerce giant allegedly deployed a secret algorithm, internally known as “Project Nessie,” that raised the prices on its online store.
Amazon created a secret algorithm that helped the e-commerce giant generate an extra $1 billion dollars, the U.S. Federal Trade Commission (FTC) alleged in a new court filing on Nov. 2.
In September, the FTC and 17 states filed an antitrust lawsuit against Amazon, but many details were withheld until Nov. 2, when a version of the lawsuit with fewer redactions was made public in the U.S. District Court in Seattle.
According to the new, less redacted complaint, Amazon allegedly deployed a secret algorithm, internally known as “Project Nessie,” that raised the prices of items on its online store and, in turn, across the market accordingly.
Knowing that many websites set their prices to match Amazon’s, the company allegedly developed Nessie to increase prices on products that other retailers would follow.
After outside retailers began matching or increasing their own prices, Amazon would continue to sell the product at an inflated price, the FTC alleged, which resulted in $1 billion in excess profit.
The FTC accused Amazon of turning on and off Project Nessie to avoid scrutiny.
“Aware of the public fallout it risks, Amazon has turned Project Nessie off during periods of heightened outside scrutiny and then back on when it thinks that no one is watching,” it stated in the complaint.
“Project Nessie generated enormous profits for Amazon even though its higher prices caused Amazon’s unit sales to decrease. In 2015, for example, Project Nessie’s higher prices reduced Amazon’s gross sales revenue while increasing Amazon’s profits on those reduced sales by an extra $363 million. In 2018, Amazon estimated that Project Nessie increased Amazon’s yearly profits by $334 million.”
The FTC called the algorithm an “unfair method of competition” because it manipulates other online stores into raising prices, allowing Amazon to do the same.
“The sole purpose of Project Nessie was to further hike consumer prices by manipulating other online stores into raising their prices,” the FTC alleged.
By Aaron Pan