In a recent court filing, the U.S. Federal Trade Commission revealed that Amazon.com employed unlawful tactics to enhance profits within its online retail domain, which included the use of an algorithm that increased the prices paid by U.S. households by over $1 billion.
The FTC lawsuit was initiated in September, with several details being kept confidential until Thursday, when a less redacted version of the lawsuit was unveiled in the U.S. District Court in Seattle.
With a vast online superstore boasting over 1 billion items, Amazon developed an internal algorithm, codenamed 'Project Nessie,' to pinpoint products for which it anticipated competitors would match their price hikes. According to the FTC, Amazon leveraged Project Nessie to extract over a billion dollars directly from American consumers.
Amazon spokesperson Tim Doyle stated that the FTC's portrayal of the pricing tool is highly inaccurate and clarified that the company discontinued its usage several years ago.
Doyle explained that Nessie aimed to prevent situations where price matching led to exceptionally low and unsustainable prices.
According to the complaint, Amazon initiated testing of the pricing algorithm in 2010 to assess whether rival online retailers monitored its pricing and to adjust prices upwards for items that were anticipated to be monitored by competitors.
The FTC claimed that once external retailers matched or raised their prices, Amazon would persist in selling the product at an elevated price, resulting in an extra billion dollars in profit.
According to the FTC, Amazon temporarily suspended the algorithm during its Prime Day sales events and the busy holiday shopping season, when the online retailer garnered more media and customer attention. The lawsuit further states that after public attention shifted away, Amazon reactivated Project Nessie and used it more extensively to compensate for the earlier pause. In April 2018, Amazon utilized the algorithm to determine prices for over 8 million items purchased by customers, with a combined value of nearly $194 million, before once again suspending it in 2019.
In January 2022, Amazon retail executive Doug Herrington inquired about the possibility of utilizing the "trusted tool Nessie, possibly with some new targeting strategies," to enhance profits for Amazon's retail division, as per the complaint.
The FTC has labeled Nessie's algorithm as an "unfair competitive practice" since it pressures other online retailers to increase prices, thereby enabling Amazon to follow suit.
The FTC complaint additionally alleges that Amazon attempted to conceal operational details from antitrust regulators by employing the Signal messaging app's feature for vanishing messages. The complaint also asserts that the company deleted communications spanning from June 2019 to early 2022.
TARGETING SELLERS
The FTC asserted that Amazon compelled sellers participating in its Prime program to utilize its logistics and delivery services, even though many preferred more cost-effective alternatives or services that catered to customers across various platforms where they sold their products.
The FTC further claimed that an unidentified Amazon executive overseeing global fulfillment experienced a moment of realization described as an "oh crap" moment. This occurred when they recognized that allowing sellers to be part of Prime without requiring them to use Fulfillment by Amazon was essentially weakening Amazon's competitive edge by encouraging sellers to maintain their own warehouses.
The FTC also pointed out that Amazon's average fees for sellers who opted for its fulfillment services increased from 27% in 2014 to 39.5% in 2018.
FOCUS ON WALMART
The FTC complaint highlighted that Amazon doesn't permit larger online retailers like Walmart.com to operate on its platform. When questioned about the differential treatment of Walmart.com compared to smaller sellers, Mr. Bezos testified that "It’s just different because of the scale and due to the competitive situation and so on."
In a redacted section of the lawsuit, Amazon allegedly discouraged Walmart from offering discounts to online shoppers who chose to collect their purchases from Walmart stores in 2017. Walmart declined to provide a comment for this story.
The complaint also mentions an Amazon seller who adopted a policy of ensuring that their products were not priced lower on Walmart compared to Amazon due to pressure from Amazon.
