Amazon accused of illegally boosting profits through secret algorithm

Amazon.com is facing allegations of using unlawful strategies to enhance its profits, including the implementation of an algorithm that inflated prices paid by U.S. households by over $1 billion, according to the U.S. Federal Trade Commission (FTC).

The FTC lawsuit, initially filed in September, revealed additional details in a less-redacted version made public on Thursday. This new version outlined Amazon's use of a "secret algorithm internally code-named 'Project Nessie' to identify specific products for which it predicts other online stores will follow Amazon's price increases."

Amazon, boasting a vast online superstore with over 1 billion items, has been accused of utilising Project Nessie to extract over a billion dollars directly from American consumers. Amazon's spokespersonTim Doylerefuted the FTC's characterisation of the pricing tool, emphasising that the company ceased using it several years ago. Doyle explained that Nessie aimed to prevent price matching from causing unsustainably low prices and insisted the tool was employed to maintain fair pricing practices.

The FTC's complaint outlined how Amazon initiated testing of the pricing algorithm in 2010 to gauge whether competitors tracked its prices. Subsequently, Amazon would raise prices for products that were expected to be monitored by rival online retailers. When these competitors matched or increased their prices, Amazon would allegedly persist in selling the product at an inflated price, resulting in an excess profit of $1 billion.

The FTC further claimed that Amazon paused the algorithm during its Prime Day and holiday shopping events to mitigate scrutiny. However, the lawsuit alleged that Amazon reactivated Project Nessie once public attention shifted elsewhere.

The FTC's complaint also detailed Amazon's requirement for sellers under the Prime feature to use its logistics and delivery services, even when more cost-effective alternatives were available. The FTC contended that Amazon enforced this practice, even if sellers preferred to utilise other services that could also cater to customers from different platforms. The fees for Amazon's fulfilment services, charged to sellers, increased from 27 per cent in 2014 to 39.5 per cent in 2018, according to the FTC.

In addition to the allegations regarding pricing and seller practices, the complaint raised questions about Amazon's treatment of other major online stores, such as Walmart.com. The complaint noted that Amazon doesn't permit significant online retailers like Walmart.com to sell on its platform.

In response to the different treatment of Walmart.com compared to smaller sellers, Amazon CEO Jeff Bezos cited the scale and competitive landscape as reasons for this differentiation. The complaint also mentioned that Amazon had allegedly discouraged Walmart from offering discounts to online shoppers who picked up their purchases from Walmart stores, although the details of this section remained heavily rewritten.

(With inputs from Reuters)

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