Amazon's $1.4B Price-raising 'Project Nessie' Algorithm Exposed In FTC Antitrust Fight

A fresh less-redacted copy of the US FTC's monopoly-abuse lawsuit against Amazon has confirmed some of what we previously reported about the web goliath's secret price-setting algorithm, and spilled a bunch of juicy details, too.

Project Nessie was mentioned by the FTC in earlier legal filings against Amazon, though we were left in the dark regarding its exact nature and operation thanks to heavy-handed redaction.

Nessie was rumored to be a tool for pumping up Amazon's profits by raising prices algorithmically, making customers pay more: Nessie would automatically ease up the prices of items, crucially making sure not to leave itself in a position where it would be undercut by rivals, it was claimed. Newly published [PDF] court documents from the FTC attempt to support those allegations.

We didn't know at the time how much Nessie netted Amazon, but now we do: it inflated prices to the tune of "more than $1 billion in excess profit," the FTC alleged in previously redacted, and now revealed, portions of its complaint against the tech giant. $1.4 billion, to be precise.

The degree to which Amazon was relying on it, however (at least as alleged by the FTC), wasn't clear until now. 

Amazon focused its price increases on products sold by competitors that were matching Amazon's prices

"In the early 2010s, Amazon began testing whether other online stores' pricing algorithms were following the prices set by Amazon's first-party Retail arm, where Amazon directly controls prices," the FTC suit noted, adding that those early experiments showed competitors often matched Amazon's higher prices.

"Amazon realized it could increase its prices while reducing the risk of shoppers finding a lower price off Amazon if Amazon focused its price increases on products sold by competitors that were matching Amazon's prices," the FTC claimed, from whence sprang Project Nessie. 

Per the newly unredacted portions of the complaint, Nessie was used in April 2018 alone to raise the prices of more than eight million items that collectively cost nearly $194 million. In some cases, a lag between Amazon raising its price and competitors raising theirs led to fewer sales, but Amazon saw that as an acceptable risk, the FTC alleged, provided competitors followed price increases at least 20 percent of the time. 

We've got a friend in Nessie

As we noted when the FTC case was initially filed in September, Amazon general counsel David Zapolsky claimed Amazon was proud not of the high prices it set on certain products, but of "the low prices consumers find when shopping in our store." 

"When setting prices for the products we sell ourselves, we try to match other retailers' low prices — online and offline," Zapolsky claimed. That assertion doesn't jive with the FTC's claims about Project Nessie. 

When asked about the FTC's assertions versus Zapolsky's claims, Amazon only told us what it's been saying since the plesiosauric algorithm came to light: that the tech has been "grossly mischaracterized" and isn't used anymore. 

"Nessie was used to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable," Amazon spokesperson Tim Doyle told The Register.

"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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Again, Amazon's arguments run counter to the FTC's allegations. 

First deployed in 2014, "Amazon typically ran Project Nessie 24 hours a day, 7 days a week, with two exceptions: the holiday shopping season and Prime Day," the FTC said in its lawsuit. Nessie was only paused when media focus and consumer traffic was increased, and "after the public's focus turned elsewhere, Amazon turned Project Nessie back on and ran it more widely to make up for the pause." 

The online souk toggled Nessie on and off at least eight times between 2015 and 2019, the FTC claims, and only put it on ice in 2019 "when regulatory scrutiny … caused Amazon to superficially change or conceal many of its practices." 

However, the FTC noted, there's nothing stopping the company from taking Nessie out of mothballs and putting it back into action, which it's already allegedly considered. 

"In January 2022, the CEO of Worldwide Amazon Stores, Doug Herrington, asked about turning on '[o]ur old friend Nessie, perhaps with some new targeting logic' to juice profits for Amazon's Retail arm," the lawsuit alleged. 

There are still plenty of redactions in the complaint and sealed exhibits in the case, brought by the FTC and 15 US states, so ascertaining the truth of the matter will have to wait until if and when the case makes it to court. That is, of course, assuming Amazon doesn't settle the fight to avoid the release of documents and depositions that could be incredibly damning to its bottom line. 

If so, expect no guilt to be admitted, a drop-in-the-bucket payment, and some increased scrutiny of FTC boss Lina Khan's theories of antitrust law. That, and possibly "Amazon resurrecting - or even expanding - its use of Project Nessie, just as it repeatedly has in the past," which the FTC said there's no barrier to it doing even now, should it so decide. ®

This case is FTC et al v. Amazon.com Inc. in the US District Court for the Western District of Washington, case number 23-CV-01495.