WASHINGTON, Nov 2 (Reuters) – Amazon.com ( AMZN.O ) used a series of illegal tactics to boost profits at its online retail business, including an algorithm that inflated prices for U.S. households by more than $1 billion, the U.S. Federal Trade Commission said. The commission detailed a new court filing on Thursday.
The FTC lawsuit was filed in September, but many details were withheld until Thursday, when a less redacted version of the lawsuit was made public in U.S. District Court in Seattle.
Amazon, which has over 1 billion products in its online superstore, developed a secret algorithm internally codenamed ‘Project Nessie’ to identify specific products that predict other online stores will follow Amazon’s price hikes. “More than a billion dollars directly out of Americans’ pocketbooks,” the FTC said.
Amazon spokesman Tim Doyle said the FTC found the pricing tool “grossly misleading” and that the company stopped using it years ago.
“Nessie was used to stop our price matching, resulting in extraordinary outcomes where prices were so low they were unsustainable,” Doyle said.
Amazon began testing the pricing mechanism in 2010 to see if other online retailers were tracking its prices and to raise prices for products that might be tracked by competitors, the complaint says.
After outside retailers began matching or increasing their own prices, Amazon would continue to sell products at inflated prices, the FTC alleged, resulting in $1 billion in additional profits.
Amazon suspended the algorithm during its Prime Day sales events and holiday shopping season, when the online retailer drew more media and consumer attention, the FTC said.
“After the public’s attention turned elsewhere, Amazon restarted Project Nessie and ran it more widely to make up for the hiatus,” the lawsuit said.
Amazon complained in April 2018 that it used it to set prices on more than 8 million items purchased by customers, costing a total of nearly $194 million, before suspending it in 2019.
Doug Herrington, an Amazon retail executive, asked Amazon in January 2022 about using “old friend Nessie, with some new targeting logic” to boost Amazon’s retail division’s profits, the complaint said.
The FTC complaint alleges that Amazon used the Signal messaging app’s disappearing message feature to try to hide information about activities from unscrupulous operators, and said the company destroyed communications between June 2019 and early 2022.
Amazon requires sellers under the company’s Prime feature to use its logistics and delivery services, though many prefer to use a cheaper service or serve customers from other platforms where they sell, the FTC said.
The FTC accused an unnamed Amazon executive who led global fulfillment of having a “stupid” moment when he realized that allowing sellers on Prime without using Amazon’s fulfillment “fundamentally weakens.” [Amazon’s] Competitive advantage by encouraging sellers to “run their own warehouses”.
Amazon’s average fee for sellers who used its fulfillment services increased from 27% in 2014 to 39.5% in 2018, according to the FTC.
In the complaint, the FTC noted that Amazon does not allow large online stores such as Walmart.com to sell on its site. Asked why Amazon treats Walmart.com differently than smaller retailers, Mr. Bezos testified, “It’s scale and [be]Reason for competitive situation and so on.”
One segment of the lawsuit alleges that in 2017, Amazon prevented Walmart from offering discounts to online shoppers who purchased items from Walmart stores. Walmart did not immediately respond to a request for comment.
The complaint cites one Amazon seller who, due to pressure from Amazon, adopted a policy of “absolutely ensuring that our products are not priced lower at Walmart than they are at Amazon.”
Reporting by Diane Bartz, David Shepardson and Arriana McLymore; Editing by Chisu Nomiyama, Mark Porter and David Gregorio
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