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Amazon’s Price-Fixing Algorithm: The Algorithm That Greed Built

Amazon’s Price-Fixing Algorithm: The Algorithm That Greed Built

The Federal Trade Commission (FTC) has filed a landmark antitrust lawsuit against Amazon, alleging that the company used an internal algorithm to raise prices for consumers.

FTC officials and 17 state attorneys general sued Amazon last week for allegedly using “interlocking and anticompetitive and unfair” strategies to maintain its monopoly over current and future rivals.

The 172-page lawsuit shows examples that accuse the American multinational company of raising consumer prices across retail, including a system called “Project Nessie,” which Amazon allegedly stopped using in 2019 for unknown reasons.

Sources told The Wall Street Journal that the algorithm allegedly “helped Amazon improve its profit on items across shopping categories, and because of the power the company has in e-commerce, led competitors to raise their prices and charge customers more,” as the outlet reported.

“In a competitive world, Amazon’s decision to raise prices and degrade services would create an opening for rivals and potential rivals to attract business, gain momentum, and grow,” the lawsuit reads. “But Amazon has engaged in an unlawful monopolistic strategy to close off that possibility.”

According to the lawsuit, the FTC estimated a redacted amount had been “extracted from American households” by the system, but one source told the Journal that Amazon made over $1 billion in revenue using Project Nessie.

FTC spokesman Douglas Farrar would not comment on the redacted portions in the complaint but called on Amazon to remove the blocked information.

“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,” Farrar told the Journal.

David Zapolsky, senior vice president of Amazon’s global public policy and general counsel, responded to the complaint last week, saying the federal agency “is wrong on the facts and the law” and has “radically departed” from its original purpose to enforce federal consumer protection laws and antitrust laws.

“The FTC has it backwards and if they were successful in this lawsuit, the result would be anticompetitive 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,” Zapolsky said.

Written by Mark Stevens - October 3, 2023