WASHINGTON, Nov 2 (Portal) – Amazon.com (AMZN.O) used a series of illegal strategies to boost the profits of its online retail empire, including an algorithm that drove down prices for U.S. households by more than $1 billion – dollar, according to the US Federal Trade Commission revealed details of this in a new court filing on Thursday.
The FTC lawsuit was filed in September, but many details were withheld until Thursday, when a less redacted version of the lawsuit was released in U.S. District Court in Seattle.
Amazon, which has 1 billion items in its online superstore, has developed a “secret algorithm with internal code called “Project Nessie” to identify specific products for which it predicts other online stores will follow Amazon’s price increases . … Amazon used Project Nessie to extract more than a billion dollars directly from Americans’ pockets,” the FTC said.
Amazon spokesman Tim Doyle said the FTC was “completely mischaracterizing” the pricing tool and that the company stopped using it several years ago.
“Nessie was used to prevent our price adjustment from producing unusual results where prices became so low that they were no longer sustainable,” Doyle said.
Amazon began testing its pricing algorithm in 2010 to see whether other online retailers were tracking its prices and to increase prices on products likely to be tracked by competitors, the complaint said.
After outside retailers began adjusting or increasing their own prices, Amazon would continue to sell the product at an inflated price, the FTC alleged, resulting in $1 billion in excess profits.
Amazon paused the algorithm during its Prime Day sales events and holiday shopping season when the online retailer received more media and customer attention, the FTC said.
“After the public’s focus shifted elsewhere, Amazon restarted and expanded Project Nessie to make up for the pause,” the lawsuit says.
Amazon used it in April 2018 to set prices on more than 8 million items purchased by customers that collectively cost nearly $194 million, the complaint said, before pausing in 2019.
Amazon retail manager Doug Herrington asked in January 2022 whether “old friend Nessie, perhaps with new targeting logic,” could be used to increase profits for Amazon’s retail division, the complaint said.
The FTC complaint also accuses Amazon of using the Signal messaging app’s disappearing messages feature to hide information about its operation from antitrust regulators. The company destroyed communications between June 2019 and early 2022.
CONTACT THE SELLER
According to the FTC, Amazon also required sellers as part of the company’s Prime feature to use its logistics and delivery services, even though many would prefer to use a cheaper service or one that also serves customers from other platforms on which they sell.
The FTC alleged that an unnamed Amazon executive who oversaw global fulfillment had what he called an “oh crap” moment when he realized it was “fundamentally weaker” to deny access to sellers to Prime without using Shipping by Amazon [Amazon’s] Competitive advantage” by encouraging sellers to “operate their own warehouses.”
According to the FTC, Amazon’s average fees for sellers using its fulfillment services rose from 27% in 2014 to 39.5% in 2018.
Targeted by Walmart
In the complaint, the FTC noted that Amazon does not allow other large online stores such as Walmart.com to sell on its platform. Asked why Amazon treats Walmart.com differently than smaller sellers, Mr. Bezos said: “It’s different simply because of the size and scale.” [be]cause of the competitive situation, etc.
In a section of the lawsuit that is still heavily redacted, Amazon allegedly stopped Walmart in 2017 from offering discounts to online shoppers who picked up their purchases at Walmart stores. Walmart did not immediately respond to a request for comment.
The complaint cites an Amazon seller who, due to pressure from Amazon, adopted a policy designed to “make absolutely sure that our products are not cheaper at Walmart than at Amazon.”
Reporting by Diane Bartz, David Shepardson and Arriana McLymore; Edited by Chizu Nomiyama, Mark Porter and David Gregorio
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