According to newly redacted portions of the Federal Trade Commission’s (FTC) antitrust lawsuit against the e-commerce giant, Amazon made more than $1,000 in excess profits by using a secret algorithm codenamed “Project Nessie” that drove up prices achieved a billion US dollars.
Project Nessie, which Amazon used between 2015 and 2019, was able to increase prices on and off the platform by predicting whether other online stores would follow Amazon’s price increase, the FTC said.
Using these predictions, the agency claimed, Amazon would increase prices when it was most likely to be followed, and maintain the higher price after other online stores made similar price increases.
“The sole purpose of Project Nessie was to further increase consumer prices by manipulating other online stores into increasing their prices,” the FTC said in the filing released Thursday.
“The additional profit that Amazon attributes to Project Nessie is money that Amazon shoppers would have kept in their pockets if Amazon had not used Project Nessie,” it continued.
Amazon reportedly used the secret algorithm to set prices for more than 8 million items that customers purchased in one month in 2018. This year, the e-commerce giant estimated that Project Nessie brought in an additional $334 million in profits.
The FTC alleged that the algorithm generated more than $1 billion in excess profits for Amazon between 2016 and 2018. However, the agency noted that this figure does not take into account the additional amount shoppers paid at other stores as a result of Project Nessie and is “likely far higher.”
While the algorithm typically ran uninterrupted, Amazon paused Project Nessie during the holiday shopping season and Prime Day due to “increased media focus and customer traffic,” the filing said.
“After the public’s focus shifted elsewhere, Amazon restarted and expanded Project Nessie to make up for the pause,” the FTC said.
Due to regulatory controls, Amazon stopped using Project Nessie in 2019. However, it was considering running experiments in 2020 and 2021 to improve the algorithm’s effectiveness, and one executive reportedly suggested turning her “old friend Nessie” back on in early 2022 to boost profits, according to of submission.
“There are no technical barriers to Amazon reviving or even expanding its use of Project Nessie, as it has repeatedly done in the past,” the FTC warned. “Amazon could reverse the current pause at any time and use Nessie again at any time to raise prices for consumers and undermine competition.”
However, Amazon spokesman Tim Doyle said the FTC’s filing “grossly mischaracterizes” the tool.
“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 in a statement. “The project ran for a few years with a subset of products but wasn’t working as intended, so we scrapped it a few years ago.”
The FTC and a bipartisan coalition of 17 attorneys general sued Amazon in late September, accusing the company of using anticompetitive measures that punish sellers and discourage other online retailers from offering lower prices.
“Amazon is a monopolist,” the agency said in its filing.
“It exploits its monopolies in ways that enrich Amazon but harm its customers: both the tens of millions of American households that regularly shop at Amazon’s online superstore and the hundreds of thousands of businesses that rely on Amazon to serve them to reach.”
–Updated at 1:44 p.m
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