FTC Alleges Amazon Deployed Secret Algorithm to Raise Prices

The Federal Trade Commission (FTC) reportedly unveiled details of a lawsuit against Amazon Thursday (Nov. 2), accusing the eCommerce giant of employing strategies to enhance its profits.

The FTC alleges that Amazon used a secret algorithm, internally known as “Project Nessie,” to raise prices for specific products, resulting in over $1 billion in added costs for U.S. households, Reuters reported Thursday.

According to the FTC lawsuit, Amazon developed Project Nessie in 2010 to identify products for which it predicted other online retailers would follow its price increases, the report said. By raising prices on these products, Amazon allegedly extracted over $1 billion directly from American consumers. The FTC claims that Amazon continued to sell these products at inflated prices after outside retailers matched or increased their prices.

Amazon spokesperson Tim Doyle refuted the FTC’s allegations, telling Reuters that the pricing tool has been grossly mischaracterized. Doyle emphasized that the company stopped using the algorithm several years ago. According to Doyle, Nessie was primarily utilized to prevent Amazon’s price matching from resulting in unsustainable low prices.

The FTC lawsuit also accuses Amazon of using the Signal messaging app’s disappearing message feature to hide information about its operations from antitrust enforcers, according to the report. The agency claims that Amazon destroyed communications between June 2019 and early 2022.

Furthermore, the complaint alleges that Amazon required sellers to use its logistics and delivery services under the Prime feature, potentially limiting competition and increasing seller fees, per the report.

The FTC lawsuit highlights Amazon’s alleged discriminatory treatment of other big online stores, such as Walmart.com, per the report. Amazon does not allow these competitors to sell on its platform, citing differences in scale and competitive situations.

It was also reported Thursday that the FTC alleges in its lawsuit that Amazon doubled the number of low-quality advertisements on its platform to enhance profits, even when the company’s internal assessments labeled the ads as “defects” because they were not relevant to user searches.

The FTC contends that Amazon’s strategy of flooding its platform with ads harms both sellers and consumers by making it more challenging for customers to locate the products they seek, the Los Angeles Times reported Thursday.