Amazon Had Secret Algorithm To Hike Prices, Claims FTC

A redacted portion of the US Federal Trade Commission's antitrust lawsuit against Amazon last week has come to light, and with it more details of a secret pricing algorithm known as "Project Nessie" – which the FTC argued has "no valid and cognizable justification" other than an attempt to stifle competition. 

The FTC's suit, like many coming out of the commission, is highly redacted. While Project Nessie is mentioned by name in the unredacted portions, almost all the details are blacked out – aside from the FTC's claim that "Amazon’s use of its Project Nessie pricing system is an unfair method of competition in violation of Section 5(a) of the FTC Act." 

The watchdog – run by Big Tech arch-critic Lina Khan – along with more than a dozen US states is suing [PDF] Amazon, accusing the internet goliath of using various underhand and unfair tactics to maintain its dominance in online shopping.

Knowledge of how Nessie operates comes from unnamed sources who spoke to the Wall Street Journal, and claimed the algorithm was used to test how high Amazon could raise prices before being undercut by competitors. When its rivals did not match Amazon's price hikes, the sources claim, the online souk would automatically return prices to their previous lower level. 

Nessie was also used to discount goods, with the algorithm triggering discounts by Amazon if a competitor reduced prices. Amazon would also maintain its lower prices at the end of a sale period, presumably creating a compelling reason for its competitors to match that lower price. 

The project extracted a redacted amount of cash from American households in "excess profit," the suit alleges. The sources claim that redacted number is in excess of $1 billion. 

Time to open up Amazon

The FTC told us it can't comment on redacted portions of the case, but said redactions are standard when non-public information is included, and it's up to Amazon to allow it to go public. Amazon has 14 days after info is sealed to provide a justification for why the data shouldn't be released. It isn't clear from the FTC's case page when the complaint was sealed – it was filed on September 26.

"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 is their illegal monopolistic practices," FTC spokesperson Douglas Farrar told The Register.

Amazon declined to comment further though earlier told the WSJ that the FTC's suit mischaracterized Nessie. 

"Project Nessie was a project with a simple purpose – to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable," the internet souk told the newspaper. "The project ran for a few years on a subset of products, but didn't work as intended, so we scrapped it several years ago." 

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Amazon general counsel David Zapolsky also commented on the FTC case last week, though his statement now seems to clash with the revelation that Amazon was using an algorithm to inflate prices. 

"The FTC's complaint alleges that our pricing practices … are anticompetitive. In so doing, the lawsuit reveals the Commission's fundamental misunderstanding of retail," Zapolsky declared earlier. "When setting prices for the products we sell ourselves, we try to match other retailers' low prices – online and offline." 

Zapolsky said Amazon doesn't control third-party seller prices, though does offer tools that help sellers in its bazaar set prices competitively. While not addressing Nessie by name, Zapolsky reckoned Amazon's various tools for sellers can't help those who still choose to set non-competitive prices. 

"The FTC's case alleges that our practice of only highlighting competitively priced offers and our practice of matching low prices offered by other retailers somehow led to higher prices. But that's not how competition works," Zapolsky claimed. 

In any case, he is arguably ignoring one of the key allegations in the FTC's case: that Amazon used its outsized market power to punish those that tried to undercut its prices, which sounds an awful lot like the sort of thing a monopoly does.

If the FTC wins its case, Zapolsky claimed, "the result would be anti-competitive and anti-consumer because we'd have to stop many of the things we do to offer and highlight low prices – a perverse result that would be directly opposed to the goals of antitrust law."

Along with claiming Amazon used anti-discounting measures, the FTC also alleged the e-tail titan forced vendors to use its own fulfillment services in order to qualify for better pricing. The FTC's suit includes 20 counts, most of which are violations of state antitrust laws from the 17 states that joined the commission in FTC chair Lina Khan's big tech trust-busting mission. 

Among those 20 charges, Amazon is accused of four counts of federal monopoly maintenance and two counts of unfair methods of competition – one of which has solely to do with its use of Project Nessie. ®