Amazon used secret algorithm codenamed ‘Project Nessie’ to raise prices, WSJ reports

Amazon used a secret algorithm to test how high it could raise prices in a manner designed to encourage competitors to do the same. Additionally, the algorithm sought to determine the threshold at which Amazon could raise prices before its competitors ceased hiking their prices, The Wall Street Journal reported on Tuesday.

According to the Journal’s investigative report, the existence of this algorithm, known as “Project Nessie,” was first revealed in late September in a complaint filed by the Federal Trade Commission (FTC) against Amazon, accusing the e-commerce giant of violating US antitrust law. However, the details of the FTC’s public complaint were heavily redacted.

As we reported back in September, the FTC, along with 17 states, filed a landmark antitrust lawsuit against the retail giant after a four-year investigation. The FTC, in collaboration with participating states, said that their goal was to seek a permanent injunction from the court. The injunction was intended to stop Amazon’s purportedly unlawful activities and reduce its monopolistic influence in an effort to reinstate a climate of healthy competition.

“Left unchecked, Amazon will continue its illegal course of conduct to maintain its monopoly power,” the FTC said in its complaint which asked the court “to put an end to Amazon’s illegal course of conduct, pry loose Amazon’s monopolistic control, deny Amazon the fruits of its unlawful practices, and restore the lost promise of competition.”

Meanwhile, in its report, the Journal said that Nessie would raise prices and closely watch whether other retailers, like Target, would follow suit. If these competing retailers stuck to their lower prices, the algorithm would automatically revert Amazon’s prices back to their regular rates. The lawsuit asserted that Amazon utilized this algorithm, codenamed “Project Nessie,” to determine how much it could increase prices before its competitors ceased their own price hikes.

“We once again call on Amazon to move swiftly to remove the redactions and allow the American public to see the full scope of what we allege are their illegal monopolistic practices,” FTC spokesperson Douglas Farrar told the Journal Tuesday.

According to the Federal Trade Commission (FTC), Nessie’s role was to inflate prices and observe whether other retailers, such as Target, would follow suit. If these competitors maintained their lower prices, the algorithm would promptly return Amazon’s prices to their usual levels. However, if rival retailers raised their prices, Amazon would keep its prices inflated.

The FTC contends that Nessie aided Amazon in boosting its profits by artificially inflating prices across various shopping categories. The agency also asserts that Nessie had detrimental effects on consumers by reducing competition and granting Amazon excessive market dominance.

Amazon has vehemently denied the FTC’s allegations, asserting that Nessie was a legitimate tool used for price testing and did not harm consumers. The company also maintains that it ceased using Nessie in 2019. But in a statement in September, FTC Chair Lina Khan said:

“The complaint sets forth detailed allegations noting how Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them,”

The ongoing lawsuit by the FTC against Amazon remains unresolved, leaving uncertainties about whether the agency can substantiate its claims. Nonetheless, the case has brought forth serious concerns about Amazon’s market dominance and its implications for consumers.

In addition to the FTC’s lawsuit, Amazon faces antitrust investigations from the European Union and various state governments within the United States. These investigations revolve around allegations of Amazon leveraging its market power to unfairly promote its own products and services over those of its competitors.

The revelation of Amazon’s covert algorithm underscores the company’s substantial influence and the potential for misuse of that power. It serves as a poignant reminder of the crucial role of antitrust enforcement in safeguarding consumers against unfair competition practices.