FTC Lawsuit Says Amazon Made $1 Billion In Price Fixing Scheme; Secret Amazon algorithm raised prices and profits.
According to insider sources cited by the WSJ, Amazon reaped over $1 billion in revenue through the algorithm's implementation
October 31, 2023
October 26, 2023, Los Angeles, CA – A Federal Trade Commission (FTC) lawsuit alleges Amazon employed a secret algorithm code-named "Project Nessie" that guided Amazon to raise prices and improve profits on items across its most popular online shopping categories. Because of Amazon's dominance in e-commerce, the algorithm led competitors to raise their prices and charge customers more. When competitors didn't raise their prices to Amazon's level, the algorithm-which is no longer in use-automatically returned the item to its normal price point, according to an investigation by The Wall Street Journal.
The FTC's lawsuit does not disclose the precise financial impact on American households but states that it generated significant "excess profit" for Amazon. According to insider sources cited by the WSJ, Amazon reaped over $1 billion in revenue through the algorithm's implementation.
The FTC's complaint further asserts that Amazon's immense reach, consumer base, and logistical capabilities compel sellers to use its platform. Amazon restrictions, however, prohibit sellers from offering their products at lower prices on alternative retail platforms.
"Amazon uses its extensive surveillance network to block price competition by detecting and deterring discounting, artificially inflating prices on and off Amazon, and depriving rivals of the ability to gain scale by offering lower prices."
The FTC lawsuit, joined by 17 state attorneys general, alleges Amazon forces its sellers to use its warehouses and delivery services and to offer products cheaper than on other platforms, inflating costs for consumers and sellers. The FTC quotes a seller as saying: "We have nowhere else to go, and Amazon knows it." Amazon has about 500,000 independent sellers on its websites.
In a press briefing, FTC Chair Lina Khan said, "Amazon is now exploiting its monopoly power to harm its customers, both the tens of millions of families that shop on Amazon's platform and the hundreds of thousands of sellers that use Amazon to reach them," she said. "Amazon now takes one of every $2 that a seller makes."
Luc Rocher, a lecturer at the Oxford Internet Institute who studies competition harms of algorithms, was also not surprised by the WSJ's report. Rocher posted that Amazon's algorithm "matches perfectly" with predictions they and co-authors made earlier this year in a report finding that dominant firms' "strong pricing algorithms can manipulate competitors, and make them lower or raise their prices, at the expense of consumers."
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