Amazon used a secret algorithm called “Project Nessie” to increase prices without being alone at higher price points, according to a lawsuit filed by the Federal Trade Commission (FTC). The algorithm pulled competitors along by automatically lowering the price of an item if competitors didn’t raise their prices to match Amazon’s. On the other hand, if Amazon matched a sale price, competitors would also match it, resulting in everyone being stuck at that price when the sale ended. The algorithm was not publicly known until the FTC complaint was filed, and Amazon no longer uses it. However, Amazon claims that the allegations misunderstand the purpose of Project Nessie, stating it was designed to prevent unsustainable low prices.
Former employees who worked on Project Nessie revealed that the algorithm was used to commit Amazon to lower prices. This was because competitors would be tied to other sites’ level when the first sale price ended. The algorithm remained undisclosed until the FTC complaint, and even then, that part of the document was heavily redacted. Amazon responded to the allegations and stated that Project Nessie was simply an attempt to stop price matching from resulting in unsustainable outcomes. The redacted portions of the FTC complaint included estimates of the amount of money extracted from American households and the excess profits generated by Nessie.
Despite Amazon’s claims, the FTC lawsuit alleges that the company leveraged its market clout through the use of the secret algorithm. The algorithm allowed Amazon to manipulate prices while keeping competitors in line, ensuring that the company did not end up alone at higher price points. The FTC is seeking remedies to prevent Amazon from engaging in anti-competitive practices in the future. Whether or not Project Nessie was used in violation of antitrust laws will ultimately be determined by the court.
