FTC accuses Amazon of manipulating prices using a secret algorithm that made it $1 billion

[midian182]

In a nutshell: A redacted portion of the FTC's monopoly lawsuit against Amazon accuses the tech giant of using a secret pricing algorithm that allowed the company to see how far it could raise its prices before competitors stopped raising theirs.

The FTC filed a 172-page antitrust lawsuit against Amazon in September following a four-year investigation. The company is accused of harming the public and businesses through anti-competitive policies and conduct, which includes putting its own products first in search results and charging sellers more unless they agree to sell exclusively with Amazon. It's also claimed that Amazon punishes sellers for discounting products outside the Amazon marketplace by burying their search results. All these practices led to higher prices for consumers, states the Commission.

A heavily redacted section of the complaint reveals the existence of an algorithm codenamed Project Nessie. As reported by the Wall Street Journal, it was designed to improve Amazon's profit by raising prices on items while monitoring if competitors did the same thing. When companies such as Target didn't raise their prices, the algorithm automatically returned the Amazon item back to its original amount.

The algorithm was also used to discount goods if competitors reduced prices in sales. Amazon would keep the prices low at the end of the sale period.

Project Nessie allegedly helped Amazon recoup money and improve margins until the company stopped using it in 2019. According to a person familiar with the matter, Amazon made more than $1 billion in revenue through the use of the algorithm.

The FTC told The Reg that redactions are standard when non-public information is included in cases, adding that Amazon has 14 days after the information is sealed to provide a justification for why the data shouldn't be released.

"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," FTC spokesperson Douglas Farrar told the Journal.

Project Nessie is just one element of the FTC's complaint contending that Amazon's monopoly has impacted the rising prices of consumer goods across retail. The Commission said the algorithm has "no valid and cognizable justification" other than to stifle competition.

Amazon says the FTC is grossly mischaracterizing the algorithm. "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 project ran for a few years on a subset of products, but didn't work as intended, so we scrapped it several years ago," a company spokesperson said.

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https://www.techspot.com/news/100393-ftc-accuses-amazon-manipulating-prices-secret-algorithm-made.html

 

[Uncle Al]

Go get 'em FTC and stick it to them good!

 

[GFitzpatrick47]

If all this algorithim does is essentially monitor comparable prices amongst competitors offering similar (if not the same products)...I don't see what the issue is in terms of legality. Why wouldn't an entity in a market utilize price changes as a competitive response to the movements of other entities?

Even on the low-end, if a competitor wanted to sell their product at an exorbitant discount solely to gain market share, a company like Amazon should be able to make a decision, automated or otherwise, as to whether or not to price match.

Maybe I'm not seeing something (perhaps the illegality pertains to the automation), but this unredacted portion doesn't scream any sort of market manipulation. It sounds like a company, in an industry, developed a method of pricing that simply responded (in an albeit faster manner) to price movements made by competitors. If that isn't one of the natural elements of competition (price adjustments), I don't know what is.

 

[wiyosaya]

If all this algorithim does is essentially monitor comparable prices amongst competitors offering similar (if not the same products)...I don't see what the issue is in terms of legality. Why wouldn't an entity in a market utilize price changes as a competitive response to the movements of other entities?

Even on the low-end, if a competitor wanted to sell their product at an exorbitant discount solely to gain market share, a company like Amazon should be able to make a decision, automated or otherwise, as to whether or not to price match.

Maybe I'm not seeing something (perhaps the illegality pertains to the automation), but this unredacted portion doesn't scream any sort of market manipulation. It sounds like a company, in an industry, developed a method of pricing that simply responded (in an albeit faster manner) to price movements made by competitors. If that isn't one of the natural elements of competition (price adjustments), I don't know what is.

The problem arises when you have a behemoth like Amazon monitoring the price at which other sellers of a product sell that particular product, and then the behemoth alters its price to sell the product at a lower price which may not be sustainable for the other sellers to sell any such products at the price Amazon sells them for. Its an anti-competitive practice that could lead to driving the other sellers of the product out of business or no longer sell such products.

 

[RandomWAN]

The problem arises when you have a behemoth like Amazon monitoring the price at which other sellers of a product sell that particular product, and then the behemoth alters its price to sell the product at a lower price which may not be sustainable for the other sellers to sell any such products at the price Amazon sells them for. Its an anti-competitive practice that could lead to driving the other sellers of the product out of business or no longer sell such products.

They weren't too concerned with the Waltons doing this. Sam Walton drove a huge number of competitors under with these tactics.

 

[GFitzpatrick47]

The problem arises when you have a behemoth like Amazon monitoring the price at which other sellers of a product sell that particular product, and then the behemoth alters its price to sell the product at a lower price which may not be sustainable for the other sellers to sell any such products at the price Amazon sells them for. Its an anti-competitive practice that could lead to driving the other sellers of the product out of business or no longer sell such products.

But competing on price is arguably the main way that purveyors of similar products compete, and it's one of the few ways that we as consumers have a direct choice on whether or not to be patrons. Shouldn't it be my choice, as a consumer, to go with the products I want because retailer A is less expensive that retailer B? Why shouldn't Amazon, regardless of size, be able to monitor their competitors and adjust their prices accordingly? If Amazon (or any other company) can withstand dropping their prices, so be it. Loss leaders have existed for well over a century, and I'm not seeing how what Amazon did is somehow illegal.

Considering the magnitude of consolidation in most industries that affect the average consumer everyday (including areas where we don't directly see the consolidation, such as manufacturers and intermediaries), Amazon is an easy target. However, I don't think that the FTC is going to be able to show that Amazon, of all places, is leading to higher prices in the totality of products they offer. Further, I don't think the FTC will be able to show that somehow breaking up Amazon will somehow lead to greater competition or lower prices for consumers, particularly in remote and rural areas that are often not served by other big box retailers. Frankly put, Amazon provides online retail access to a bevy of products that many consumers would have either no access to, or pay much higher prices in any attempt to procure them.

Admittedly, this is one of the areas where it might suck of you're a small-time purveyor of goods, but if you break up Amazon, you still have other behemoths who will gladly fill the space (as they have been attempting to do since Amazon moved from only selling books). This strikes me as an undue targeting of an admittedly juicy target, especially if it doesn't coincide with going after Wal-Mart, Target, major grocers, Best Buy, and so forth. It's even more egregious when you consider the outright oligopoly pricing in certain industries that this website, amongst others, feature, which almost ALWAYS result in higher prices for consumers, that the FTC has done absolutely ****-all to combat in the last 10 years.

 

[maxxcool7421]

The problem arises when you have a behemoth like Amazon monitoring the price at which other sellers of a product sell that particular product, and then the behemoth alters its price to sell the product at a lower price which may not be sustainable for the other sellers to sell any such products at the price Amazon sells them for. Its an anti-competitive practice that could lead to driving the other sellers of the product out of business or no longer sell such products.

So why is Walmart in the same boat?

Or Costco?

Same tactics ..

 

[Gastec]

"A heavily redacted section of the complaint reveals the existence of an algorithm codenamed Project Nessie. As reported by the Wall Street Journal, it was designed to improve Amazon's profit by raising prices on items while monitoring if competitors did the same thing. When companies such as Target didn't raise their prices, the algorithm automatically returned the Amazon item back to its original amount.
The algorithm was also used to discount goods if competitors reduced prices in sales. Amazon would keep the prices low at the end of the sale period."

Amazon has been doing that in Europe for YEARS! But it's not just Amazon manipulating the so-called "free" market, I'm under the impression they are all doing it, at least the IT and tech stores and marketplaces I follow. They are all involved in price-fixing, while euphemistically calling it "price matching"
Affectionately calling it Project Nessie (the name Loch Ness monster is known as, a creature that doesn't exist) is CIA, black-ops level.

 

[trgz]

I used to watch two (sometimes three) 3rd party Amazon sellers drop their prices of second-hand CDs by 1p each in turn until items sold - it's no 'secret' that it happened that way, so why expect it to not happen the other? Also, some years ago, I'm sure I saw prices jump up on several occasions when I returned to an item - it was as if the price adjusted itself based on my interest.

 

[3volv3d]

Amazon prime day around the corner.
Brilliant.
And we all look at sales and watch amazon lie as they say 66% off retail while inflating the rrp to make the sale look so tempting.

If people are stupid enough to buy stuff they don't really need then up to them, just tax businesses and the high earners respectively so that the infrastructures of our countries can be maintained healthily. They all use our transports systems and smog up the air. Make them help pay to fix it.

 

[wiyosaya]

But competing on price is arguably the main way that purveyors of similar products compete, and it's one of the few ways that we as consumers have a direct choice on whether or not to be patrons. Shouldn't it be my choice, as a consumer, to go with the products I want because retailer A is less expensive that retailer B? Why shouldn't Amazon, regardless of size, be able to monitor their competitors and adjust their prices accordingly? If Amazon (or any other company) can withstand dropping their prices, so be it. Loss leaders have existed for well over a century, and I'm not seeing how what Amazon did is somehow illegal.

Considering the magnitude of consolidation in most industries that affect the average consumer everyday (including areas where we don't directly see the consolidation, such as manufacturers and intermediaries), Amazon is an easy target. However, I don't think that the FTC is going to be able to show that Amazon, of all places, is leading to higher prices in the totality of products they offer. Further, I don't think the FTC will be able to show that somehow breaking up Amazon will somehow lead to greater competition or lower prices for consumers, particularly in remote and rural areas that are often not served by other big box retailers. Frankly put, Amazon provides online retail access to a bevy of products that many consumers would have either no access to, or pay much higher prices in any attempt to procure them.

Admittedly, this is one of the areas where it might suck of you're a small-time purveyor of goods, but if you break up Amazon, you still have other behemoths who will gladly fill the space (as they have been attempting to do since Amazon moved from only selling books). This strikes me as an undue targeting of an admittedly juicy target, especially if it doesn't coincide with going after Wal-Mart, Target, major grocers, Best Buy, and so forth. It's even more egregious when you consider the outright oligopoly pricing in certain industries that this website, amongst others, feature, which almost ALWAYS result in higher prices for consumers, that the FTC has done absolutely ****-all to combat in the last 10 years.

So why is Walmart in the same boat?

Or Costco?

Same tactics ..

You both bring up valid points, and I think that the answer to why are not more companies being targeted for similar practices comes down to the flip-flopping of political parties in leadership capacities. One party tends to look out for big business, and the other party tends to look out for the little guys - IMO. I tend to think that one party gets into the WH and moves a pile of dirt to the other side of the WH lawn, then when the WH changes hands to the other party, the other party moves the pile of dirt back where it was - ad-infinitum.

As to choice, if the effect of these practices eliminates the little guy sellers and your only choice is a big-guy seller, then do you have any choice at all?

IMO, Amazon does offer a vast variety of products that might be difficult to find elsewhere. Personally, I avoid them whenever possible as I am not a fan, at all, of their web site and its tendency to us "OR" searches when looking for a product. Amazon's search will present searchers with options that may not be exactly what you are looking for. One has to be extremely careful with Amazon when buying something lest you get something that you did not want; even if you can return an unwanted product, its a PITA to do so. Thus, I don't mind occasionally paying more for a product that I might pay less for at Amazon simply because it means that I don't have to deal with Amazon and their crap business practices.

 

[Crinkles]

"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 project ran for a few years on a subset of products, but didn't work as intended, so we scrapped it several years ago"

So what did Amazon do with that billion are you going to put it back? Then you owe ma a billion too, I was unable to sell anything over that entire period, probably deserve compensation. Huge companies always look for incredibly bad ways to do shitty things, often to their customers. If the Fed's break AMAZON into ten thousand tiny companies scattered into the four winds, you have earned it. Vengeance sucks for the receivers.

It's not like there are zero examples of what "not to do" in business, I like Amazon, the website and searching, reviewing and buying products, but I will never support screwing customers for a billion dollars.

A billion. What were you thinking?

 

[RandomWAN]

One party tends to look out for big business, and the other party tends to look out for the little guys - IMO. I tend to think that one party gets into the WH and moves a pile of dirt to the other side of the WH lawn, then when the WH changes hands to the other party, the other party moves the pile of dirt back where it was - ad-infinitum.

This is patently wrong. Both sides are looking out for big businesses and their buddies. Neither side looks out for the little guys. That's just political spin trying to distract people from the dirty crap they all pull behind the scenes. If you think something one of those sides is doing benefits the little guys, look deeper. Nothing changes even when one side has a majority in the whole system and it's been a majority repeatedly for both sides while the status quo continues.

 

[Watzupken]

I too find no issues with the algo used. Assuming you run a store selling the same stuff as your competitor, how then do you compete? Won't you either try and offer better service, or, compete on price? Being a predominately online store, the former may not be very effective, leaving just competition on price. Just because Amazon is big, so they cannot compete based on price? After all, if the priced it low, they earn less as well. Sure it will impact smaller retailers, but it is never a good idea for small retailers to compete based on pricing alone. At the end of the day, it takes 2 hands to clap. I do wonder if people working in FTC ever buys anything from Amazon since they think they are anti-competitive?