Amazon employed a range of illicit tactics to bolster its online retail profits, including an algorithm that inflated prices paid by U.S. households by over $1 billion, as revealed in a recent court filing by the U.S. Federal Trade Commission (FTC).

While the FTC filed a lawsuit in September, many details remained undisclosed until Thursday when a less redacted version was made public in a U.S. District Court in Seattle.
Amazon, known for its vast online superstore with over a billion items, allegedly developed an internal "secret algorithm" referred to as 'Project Nessie.' This algorithm was designed to identify specific products for which Amazon anticipated that other online stores would emulate its price increases. According to the FTC, Amazon employed 'Project Nessie' to extract more than a billion dollars directly from American consumers.

Amazon's spokesperson, Tim Doyle, countered the FTC's claims, asserting that they mischaracterized the pricing tool and clarified that the company had ceased using it several years ago. Doyle explained that 'Nessie' was used to prevent unusual price outcomes that were unsustainable due to price matching.

Amazon commenced testing the pricing algorithm in 2010 to evaluate whether other online retailers tracked its prices and to raise prices for products likely to be tracked by competitors, according to the complaint.

The FTC alleged that after external retailers matched or raised their prices in response, Amazon continued selling the product at an inflated price, leading to an excess profit of $1 billion.

The lawsuit stated that Amazon temporarily suspended the algorithm during Prime Day and the holiday shopping season when the online retailer received more attention from the media and customers. However, once the public's focus shifted elsewhere, Amazon reactivated 'Project Nessie' and used it more extensively.

Amazon reportedly employed 'Nessie' to set prices for over 8 million items totaling nearly $194 million in April 2018 before pausing its use in 2019. In January 2022, a senior Amazon retail executive proposed using "old friend Nessie, perhaps with some new targeting logic" to enhance the profits of Amazon's retail arm.

The FTC deemed the algorithm within 'Nessie' as an "unfair method of competition" because it manipulated other online stores into raising prices, thereby enabling Amazon to do the same.

The complaint also accused Amazon of attempting to conceal information from antitrust authorities by utilizing the Signal messaging app's disappearing message feature. It claimed that the company destroyed communications between June 2019 and early 2022.

FTC Accuses Amazon of Compelling Sellers to Use Its Logistics

According to the FTC, Amazon compelled sellers participating in its Prime program to utilize the company's logistics and delivery services, despite many preferring more cost-effective options or those compatible with other platforms where they sell.

The FTC claimed that a high-ranking, unnamed Amazon executive responsible for global fulfillment had a moment of realization, which he referred to as an "oh crap" moment. This moment occurred when he recognized that allowing sellers to be part of Prime without obligating them to use Fulfillment by Amazon was fundamentally undermining Amazon's competitive advantage by encouraging sellers to manage their own warehouses.

The FTC also revealed that Amazon's average fees for sellers employing its fulfillment services surged from 27% in 2014 to 39.5% in 2018.

FTC Questions Amazon's Treatment of Walmart in Platform Access

The FTC's complaint highlights Amazon's practice of not allowing major online retailers like Walmart.com to sell on its platform. When questioned about the differential treatment of Walmart.com compared to smaller sellers, Jeff Bezos stated that it was due to differences in scale and competitive circumstances.

In a redacted section of the lawsuit, Amazon reportedly dissuaded Walmart from providing discounts to online shoppers who opted to collect their purchases from Walmart stores in 2017. Walmart has refrained from commenting on this matter.

The complaint also references an Amazon seller who, under pressure from Amazon, implemented a policy to ensure their products were not priced lower on Walmart than on Amazon.