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Amazon made $1 billion from secret price-gouging algorithm -US FTC

Nature

WASHINGTON, Nov 2 (Reuters) – Amazon.com (AMZN.O) used a series of illegal strategies to increase profits for its online retail empire, including an algorithm that raised prices for U.S. households by more than $1 billion, according to the Federal Trade Bureau. Commission detailed in a new court filing Thursday.

The FTC lawsuit was filed in September, but many details were withheld until Thursday, when a version of the lawsuit with fewer redactions was made public in U.S. District Court in Seattle.

Amazon, which has 1 billion items in its online superstore, has created a “secret internal algorithm called Project Nessie” to identify specific products for which it predicts other online stores will follow price increases. ‘Amazon. … Amazon used Project Nessie to extract more than $1 billion directly from Americans’ wallets,” the FTC said.

Amazon spokesman Tim Doyle said the FTC is “grossly misrepresenting” the pricing tool and that the company stopped using it several years ago.

“Nessie was used to try to prevent our price matching from leading to unusual results where prices became so low that they were unsustainable,” Doyle said.

Amazon began testing the pricing algorithm in 2010 to see if other online retailers were tracking its prices and to raise prices on products that could be tracked by its competitors, the complaint says.

Once outside retailers began matching or raising their own prices, Amazon continued to sell the product at an inflated price, the FTC alleged, resulting in a $1 billion excess profit.

Amazon suspended the algorithm during its Prime Day sales events and the holiday shopping season, when media and customers paid more attention to the online retailer, the FTC said.

“After the public’s attention turned elsewhere, Amazon restarted The Nessie Project and released it on a wider scale to make up for the hiatus,” the lawsuit states.

Amazon used it in April 2018 to fix prices on more than 8 million items purchased by customers that collectively cost nearly $194 million, according to the complaint, before suspending it in 2019.

Doug Herrington, Amazon’s head of retail, asked in January 2022 whether it was possible to use “his old friend Nessie, perhaps with some new targeting logic” to increase the branch’s profits. Amazon retail, according to the complaint.

The FTC complaint also accuses Amazon of seeking to hide information about its operations from antitrust authorities by using the messaging app Signal’s disappearing message feature and said the company destroyed communications from June 2019 at the beginning of 2022.

SELLER TARGETING

Amazon also asked sellers with the company’s Prime feature to use its logistics and delivery services, although many would prefer to use a service that was cheaper or that also served customers on other platforms they sell on. the FTC said.

The FTC alleged that an unnamed Amazon executive who ran global fulfillment had what he called an “oh shit” moment when he realized that letting sellers be on Prime without using Amazon’s treatment “fundamentally weakened (Amazon’s) competitive advantage” by incentivizing sellers. to manage their own warehouses.

Amazon’s average fees for sellers who used its fulfillment services increased from 27% in 2014 to 39.5% in 2018, the FTC said.

TARGET WALMART

In the complaint, the FTC noted that Amazon does not allow other major online stores like Walmart.com to sell on its platform. When asked why Amazon treats Walmart.com differently from smaller sellers, Mr. Bezos said: “It’s just different because of the scale and (because of) the competitive situation, etc.”

In a section of the lawsuit that remains largely redacted, Amazon allegedly dissuaded 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 adopted a policy of “being absolutely sure that our products are not cheaper on Walmart than on Amazon” due to pressure from Amazon.

Reporting by Diane Bartz, David Shepardson and Arriana McLymore; Editing by Chizu Nomiyama, Mark Porter and David Gregorio

Our Standards: The Thomson Reuters Trust Principles.

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Focused on US antitrust and corporate regulation and legislation, with experience covering the war in Bosnia, elections in Mexico and Nicaragua, as well as stories from Brazil, Chile, Cuba, from El Salvador, Nigeria and Peru.

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Arriana McLymore is a New York-based journalist covering e-commerce, online marketplaces, alternative revenue streams for retailers and in-store innovation. She previously worked on telecommunications and law.

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Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
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