Report: Amazon Accused of Using Secret Algorithm to Raise Prices

The Federal Trade Commission (FTC) has reportedly alleged that Amazon used a secret algorithm code-named “Project Nessie” to test the limits of price increases while ensuring competitors would follow suit.

This algorithm aided Amazon in maximizing its profits across various shopping categories, prompting competitors to raise their prices and charge customers more, according to redacted portions of the FTC’s antitrust lawsuit against the retailer, The Wall Street Journal (WSJ) reported Tuesday (Oct. 3).

Project Nessie was designed to automatically revert an item’s price to its original point if competitors failed to match Amazon’s pricing, according to the report.

Additionally, Amazon employed the algorithm in a promotional spiral, matching discounted prices from competitors, which in turn led other competitors to lower their prices, the report said.

An Amazon spokesperson told Reuters that the FTC’s allegations “grossly mischaracterize this tool.”

“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 spokesperson said. “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.”

An FTC spokesperson told the media outlet: “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.”

The FTC’s lawsuit against Amazon alleges the company’s control over third-party sellers on its platform results in higher prices for consumers, according to the report. It says the company prohibits sellers from offering lower prices elsewhere, and if they do, Amazon penalizes them by downgrading their listings.

This, according to the FTC, creates a higher price point for goods across the retail industry, as sellers are forced to use their Amazon price as the minimum, the report said.

The antitrust lawsuit was filed Sept. 26 by the FTC and 17 states.

An Amazon spokesperson said at the time, in a statement emailed to PYMNTS, that Amazon’s practices have helped spur competition and innovation in the retail industry.

“The lawsuit filed by the FTC today is wrong on the facts and the law, and we look forward to making that case in court,” the statement said.