The U.S. Federal Trade Commission described in a new court filing on Thursday how Amazon.com employed a number of illegal tactics to increase profits at its online retail empire, including an algorithm that raised prices paid by American consumers by more than $1 billion.
The Federal Trade Commission filed a case in September, but many facts were kept secret until this Thursday when the U.S. District Court in Seattle released a version of the lawsuit that had fewer redactions.
Amazon, which has 1 billion items in its online superstore, created 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 used Project Nessie to extract more than a billion dollars directly from Americans' pocketbooks," the FTC said.
The FTC "grossly mischaracterizes" the pricing tool, according to Amazon spokesperson Tim Doyle, and the company stopped utilising it several years ago.
"Nessie was used to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable," Doyle said.
According to the complaint, Amazon started experimenting with its pricing algorithm in 2010 to determine if other online merchants were following its prices and to increase the price of goods that they thought other competitors might be tracking.
The FTC claimed that Amazon would continue to sell the product at an inflated price even after other retailers started matching or raising their own pricing, resulting in an excess profit of $1 billion.
According to the FTC, Amazon stopped using its algorithm during its Prime Day sales events and the holiday shopping season, when the online retailer was the focus of increased attention from the media and customers.
"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 lawsuit said.
The complaint stated that before stopping it in 2019, Amazon utilised it in April 2018 to set pricing for more than 8 million items that customers had purchased, costing them a total of about $194 million.
According to the complaint, Amazon retail executive Doug Herrington inquired in January 2022 about leveraging "old friend Nessie, perhaps with some new targeting logic" to increase sales for Amazon's retail division.
Nessie's algorithm was dubbed a "unfair method of competition" by the FTC since it forces other online retailers to raise their prices, so enabling Amazon to follow suit.
Amazon is accused in the FTC lawsuit of destroying communications between June 2019 and early 2022 in an attempt to conceal information about its operations from antitrust regulators through the use of the Signal messaging app's disappearing message feature.
According to the FTC, Amazon also mandated that sellers using its Prime feature utilise its delivery and logistics services, despite the fact that many would prefer to use a service that was less expensive or that catered to customers from other platforms where they sell.
Amazon's global fulfilment chief, an unidentified Amazon executive, was accused by the FTC of having a "oh crap" moment when he realised that allowing sellers to be on Prime without using Fulfilment by Amazon was "fundamentally weakening (Amazon’s) competitive advantage" and that sellers were being encouraged "to run their own warehouses."
According to the FTC, Amazon's typical fees for sellers using its fulfilment services went from 27% in 2014 to 39.5% in 2018.
The Federal Trade Commission (FTC) stated in the lawsuit that Amazon forbids other large online retailers like Walmart.com from selling in its marketplace. In his testimony, Mr. Bezos responded, "It's just different because of the scale and (be)cause of the competitive situation and so on," when asked why Amazon treats Walmart.com differently than smaller merchants.
Amazon is accused of discouraging Walmart in 2017 from providing discounts to online customers who picked up their purchases from Walmart locations in a heavily redacted section of the case. Walmart refused to comment on this article.
One Amazon seller is mentioned in the complaint as having implemented a policy to "absolutely sure that our products are not priced lower on Walmart than they are on Amazon" in response to pressure from the online retailer.
The Federal Trade Commission (FTC) claims that in a different incident, Amazon.com penalised its own sellers in an effort to restrict Walmart's influence as Walmart entered the e-commerce space.
Apart from amassing $1 billion through the use of a clandestine algorithm known as "Project Nessie" to escalate prices for American consumers, it's possible that Amazon also managed to restrain Walmart's aspirations.
The Federal Trade Commission (FTC) said on Thursday that Amazon's policy of deleting merchants' offers from the Buy Box if customers could discover the same products at lower costs on Jet.com was sparked by worry that Jet.com will be able to offer shoppers lower pricing online in 2014. The button that lets customers buy straight from a seller is called the Buy Box.
Walmart acquired Jet.com in 2016.
"Given Amazon's size and a scale, their quantitative analytical might, and particularly, against the background that they had not made a profit on (Amazon.com) for the first 20 years, it's not surprising that they would resort to such tactics against competitors," retail consultant Burt Flickinger said.
Similar to Amazon, Walmart runs an online marketplace for third parties that features products from thousands of independent vendors. Currently, millions of independent retailers sell goods on Amazon's marketplace. Fees and commissions are gathered by Walmart and Amazon from the retailers who use their platforms.
In a less-redacted version of a prior lawsuit against Amazon, the FTC said that Jet.com could offer prices that were 10% to 15% cheaper than what Amazon stated because it was not collecting seller commissions. According to the FTC, Amazon realised that this might lead to retailers passing those savings forward to customers.
Amazon took some deals from third-party sellers out of its Buy Box in an effort to hurt Jet.com. One Amazon seller is mentioned in the complaint as having implemented a policy to "absolutely sure that our products are not priced lower on Walmart than they are on Amazon" in response to pressure from the online retailer.
Additionally, the FTC said that Amazon used what it called anti-competitive algorithms to target Jet.com's best-selling items, forcing Jet to adjust its business plan in order to match lower pricing elsewhere.
The FTC "grossly mischaracterizes" the pricing tool, according to Amazon spokesperson Tim Doyle, and the company stopped utilising it several years ago.
In 2020, Walmart closed Jet and folded it into their larger online store.
According to a spokesman, Walmart declined to comment because it was not involved in the FTC lawsuit.
(Source:www.reuters.com)
The Federal Trade Commission filed a case in September, but many facts were kept secret until this Thursday when the U.S. District Court in Seattle released a version of the lawsuit that had fewer redactions.
Amazon, which has 1 billion items in its online superstore, created 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 used Project Nessie to extract more than a billion dollars directly from Americans' pocketbooks," the FTC said.
The FTC "grossly mischaracterizes" the pricing tool, according to Amazon spokesperson Tim Doyle, and the company stopped utilising it several years ago.
"Nessie was used to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable," Doyle said.
According to the complaint, Amazon started experimenting with its pricing algorithm in 2010 to determine if other online merchants were following its prices and to increase the price of goods that they thought other competitors might be tracking.
The FTC claimed that Amazon would continue to sell the product at an inflated price even after other retailers started matching or raising their own pricing, resulting in an excess profit of $1 billion.
According to the FTC, Amazon stopped using its algorithm during its Prime Day sales events and the holiday shopping season, when the online retailer was the focus of increased attention from the media and customers.
"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 lawsuit said.
The complaint stated that before stopping it in 2019, Amazon utilised it in April 2018 to set pricing for more than 8 million items that customers had purchased, costing them a total of about $194 million.
According to the complaint, Amazon retail executive Doug Herrington inquired in January 2022 about leveraging "old friend Nessie, perhaps with some new targeting logic" to increase sales for Amazon's retail division.
Nessie's algorithm was dubbed a "unfair method of competition" by the FTC since it forces other online retailers to raise their prices, so enabling Amazon to follow suit.
Amazon is accused in the FTC lawsuit of destroying communications between June 2019 and early 2022 in an attempt to conceal information about its operations from antitrust regulators through the use of the Signal messaging app's disappearing message feature.
According to the FTC, Amazon also mandated that sellers using its Prime feature utilise its delivery and logistics services, despite the fact that many would prefer to use a service that was less expensive or that catered to customers from other platforms where they sell.
Amazon's global fulfilment chief, an unidentified Amazon executive, was accused by the FTC of having a "oh crap" moment when he realised that allowing sellers to be on Prime without using Fulfilment by Amazon was "fundamentally weakening (Amazon’s) competitive advantage" and that sellers were being encouraged "to run their own warehouses."
According to the FTC, Amazon's typical fees for sellers using its fulfilment services went from 27% in 2014 to 39.5% in 2018.
The Federal Trade Commission (FTC) stated in the lawsuit that Amazon forbids other large online retailers like Walmart.com from selling in its marketplace. In his testimony, Mr. Bezos responded, "It's just different because of the scale and (be)cause of the competitive situation and so on," when asked why Amazon treats Walmart.com differently than smaller merchants.
Amazon is accused of discouraging Walmart in 2017 from providing discounts to online customers who picked up their purchases from Walmart locations in a heavily redacted section of the case. Walmart refused to comment on this article.
One Amazon seller is mentioned in the complaint as having implemented a policy to "absolutely sure that our products are not priced lower on Walmart than they are on Amazon" in response to pressure from the online retailer.
The Federal Trade Commission (FTC) claims that in a different incident, Amazon.com penalised its own sellers in an effort to restrict Walmart's influence as Walmart entered the e-commerce space.
Apart from amassing $1 billion through the use of a clandestine algorithm known as "Project Nessie" to escalate prices for American consumers, it's possible that Amazon also managed to restrain Walmart's aspirations.
The Federal Trade Commission (FTC) said on Thursday that Amazon's policy of deleting merchants' offers from the Buy Box if customers could discover the same products at lower costs on Jet.com was sparked by worry that Jet.com will be able to offer shoppers lower pricing online in 2014. The button that lets customers buy straight from a seller is called the Buy Box.
Walmart acquired Jet.com in 2016.
"Given Amazon's size and a scale, their quantitative analytical might, and particularly, against the background that they had not made a profit on (Amazon.com) for the first 20 years, it's not surprising that they would resort to such tactics against competitors," retail consultant Burt Flickinger said.
Similar to Amazon, Walmart runs an online marketplace for third parties that features products from thousands of independent vendors. Currently, millions of independent retailers sell goods on Amazon's marketplace. Fees and commissions are gathered by Walmart and Amazon from the retailers who use their platforms.
In a less-redacted version of a prior lawsuit against Amazon, the FTC said that Jet.com could offer prices that were 10% to 15% cheaper than what Amazon stated because it was not collecting seller commissions. According to the FTC, Amazon realised that this might lead to retailers passing those savings forward to customers.
Amazon took some deals from third-party sellers out of its Buy Box in an effort to hurt Jet.com. One Amazon seller is mentioned in the complaint as having implemented a policy to "absolutely sure that our products are not priced lower on Walmart than they are on Amazon" in response to pressure from the online retailer.
Additionally, the FTC said that Amazon used what it called anti-competitive algorithms to target Jet.com's best-selling items, forcing Jet to adjust its business plan in order to match lower pricing elsewhere.
The FTC "grossly mischaracterizes" the pricing tool, according to Amazon spokesperson Tim Doyle, and the company stopped utilising it several years ago.
In 2020, Walmart closed Jet and folded it into their larger online store.
According to a spokesman, Walmart declined to comment because it was not involved in the FTC lawsuit.
(Source:www.reuters.com)
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