Amazon.com Inc. (AMZN.O) engaged in a range of unlawful tactics to increase its online retail profits, as revealed by a U.S. Federal Trade Commission (FTC) court document on Thursday, which included the implementation of an algorithm that inflated U.S. consumers' prices, resulting in over $1 billion in extra charges.
Previously filed in September, the FTC's lawsuit had numerous details concealed until this Thursday, when a less redacted version was disclosed in the U.S. District Court in Seattle.
Amazon, boasting a colossal selection of 1 billion products in its digital marketplace, developed a "secret algorithm internally code named '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' pocketbooks," according to the FTC.
Tim Doyle, a representative for Amazon, stated that the FTC "grossly mischaracterizes" the pricing software, noting that the company discontinued its use a few years prior.
"Nessie was used to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable," Doyle said.
The complaint details that in 2010, Amazon initiated trials of the pricing algorithm to assess whether competitors monitored its pricing strategies and to escalate the cost of goods that were anticipated to be under such scrutiny by rival sellers.
Once it became evident that external merchants were adjusting their prices in response or setting higher prices, Amazon persisted in offering the item at an elevated rate, the FTC contended, leading to an excess gain of $1 billion.
The FTC noted that Amazon temporarily halted the algorithm during high-profile sale periods such as its Prime Day promotions and the festive shopping season, times when there was heightened media scrutiny and consumer focus on the online retailer.
"After the public's focus turned elsewhere, Amazon turned Project Nessie back on and ran it more widely to make up for the pause," the lawsuit said.
In April 2018, Amazon applied the algorithm to determine the prices for over 8 million products bought by consumers, which amounted to nearly $194 million in total costs, according to the complaint. The company then suspended the algorithm's use in 2019.
Doug Herrington, a senior executive at Amazon's retail division, inquired in January 2022 about the possibility of redeploying “old friend Nessie, perhaps with some new targeting logic," as a means to enhance the profitability of Amazon’s retail sector, the complaint alleges.
Furthermore, the FTC's complaint charges Amazon with attempting to obscure details of its internal operations from antitrust regulators by utilizing the Signal application's feature that allows messages to vanish, alleging that the company eradicated communications spanning from June 2019 to early 2022.
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