A recent investigation by the Federal Trade Commission (FTC) has revealed that Amazon.com utilized illegal tactics to maintain its dominance in the online retail industry. These strategies not only resulted in increased prices for consumers but also allowed the company to extract additional revenue from independent sellers.
The FTC alleges that Amazon employed a secret algorithm called “Project Nessie” to deliberately raise prices by over $1 billion. This algorithm was designed to identify specific products for which Amazon predicted competitors would follow its price increases. By raising prices strategically, Amazon aimed to extract more money directly from consumers.
Furthermore, Amazon monitored its sellers closely and punished them if they offered lower prices on other platforms. This practice limited the ability of independent sellers to offer competitive prices and attract customers. The FTC filed a lawsuit against Amazon in September, and previously undisclosed details of the case were recently made public in a Seattle court.
The newly revealed information highlights the FTC’s argument that Amazon maintains a monopoly power and utilizes a range of unfair and anticompetitive strategies. Project Nessie played a significant role in this regard, allowing Amazon to dictate prices and diminish competition.
While Amazon claims to have stopped using Project Nessie several years ago, the FTC asserts that there are no obstacles preventing the company from reactivating the algorithm. This raises concerns about Amazon’s potential to resume its price-raising practices in the future.
The timeline of Project Nessie’s operation sheds light on its impact. Amazon implemented the algorithm in 2014, and by 2018, it had used Project Nessie to set prices for products viewed by shoppers more than 400 million times. In April 2018 alone, the algorithm set prices for over 8 million items worth nearly $194 million.
The FTC also revealed that in January 2022, Doug Herrington, a senior executive at Amazon, expressed interest in utilizing Project Nessie once again to boost profits for Amazon’s retail arm. This indicates that the company continues to consider the algorithm’s potential in driving revenue growth.
The consequences of Amazon’s use of Project Nessie were significant for both consumers and sellers. Consumers were subjected to higher prices, limiting their ability to find more affordable options. The algorithm also reduced consumer trust in Amazon’s pricing practices and eroded confidence in the company.
For independent sellers, Amazon’s use of Project Nessie created immense pressure to increase their prices on Amazon’s platform. Failure to comply with Amazon’s pricing requirements would result in various punishments, including the removal of products from the platform. This decreased competition in the online retail space, leaving independent sellers at a disadvantage.
The FTC’s lawsuit against Amazon seeks to hold the company accountable for its use of Project Nessie and its anticompetitive practices. The commission is requesting that the court orders Amazon to cease using the algorithm, compensate affected consumers and sellers, and prohibit the company from engaging in similar anticompetitive behavior in the future.
The case against Amazon and its use of Project Nessie underscores the need for regulatory oversight in the rapidly growing online retail industry. The FTC’s efforts to address these unfair practices are an important step towards promoting fair competition and protecting the interests of consumers and independent sellers alike.
