FTC sues Amazon, claims internal algorithm hiked prices.
FTC Lawsuit Alleges Amazon Used Unfair Algorithmic Pricing Tool to Maintain Monopoly
Partially redacted portions of the Federal Trade Commission’s (FTC) antitrust lawsuit against Amazon allege the company used an internal algorithmic pricing tool described as an “unfair method of competition” to test how much it could raise prices so competitors would follow.
FTC officials and 17 state attorneys general sued Amazon last week for allegedly using “interlocking and anticompetitive and unfair” strategies to maintain its monopolistic power over current and future rivals.
The 172-page lawsuit details a number of examples accusing 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 familiar with the complaint 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.
The Journal reported that the algorithm would return the item to its standard price point if competitors didn’t match Amazon’s prices.
“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 declined to comment on the redacted portions in the complaint but called on Amazon to remove the blocked information.
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“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.
Federal officials announced the major federal lawsuit — led by FTC Chair Lina Khan — after the agency voted 3-0 to move forward with the charges in the U.S. District Court for the Western District of Washington.
“The complaint sets forth detailed allegations noting how Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them,” Khan said in a news release.
Khan, a Democrat appointed by President Joe Biden, reportedly garnered attention as a law student at Yale University when she published an influential antitrust and competition law essay targeting Amazon’s business practices. But rumors of the FTC going after the online retail giant have been circulating since the Trump administration.
What potential implications could the outcome of this lawsuit have on the e-commerce industry as a whole
FTC Lawsuit Alleges Amazon Used Unfair Algorithmic Pricing Tool to Maintain Monopoly
The Federal Trade Commission (FTC) recently filed an antitrust lawsuit against Amazon, alleging that the company manipulated prices using an internal algorithmic pricing tool. The lawsuit claims that Amazon engaged in unfair and anticompetitive practices to maintain its monopolistic power over both current and future rivals.
The lawsuit, which spans 172 pages, provides several examples of Amazon’s alleged price manipulation across the retail sector. One specific system mentioned in the lawsuit is called “Project Nessie,” which Amazon allegedly stopped using in 2019 for undisclosed reasons.
According to sources familiar with the complaint, the algorithmic tool known as Project Nessie helped Amazon improve its profit margins by raising prices on items across different shopping categories. Due to Amazon’s dominant position in e-commerce, this tactic also compelled competitors to raise their prices and charge customers more, as reported by The Wall Street Journal.
The algorithm would reportedly revert an item’s price back to its standard level if competitors did not match Amazon’s prices. This strategy, according to the lawsuit, created an unlawful environment where rivals and potential competitors were unable to attract business and grow.
Although the specific financial impact on American households is redacted in the lawsuit, the FTC estimated that a significant amount of money was taken from them as a result of Amazon’s practices. However, The Wall Street Journal reported that Amazon made over $1 billion in revenue using Project Nessie.
FTC spokesperson Douglas Farrar declined to comment on the redacted portions of the complaint but called on Amazon to remove the blocked information. This legal action by the FTC highlights the growing concern regarding Amazon’s alleged anti-competitive behavior and its impact on the retail market.
As the case unfolds, it remains to be seen how Amazon will respond to these serious allegations. The outcome of this lawsuit could have significant implications not only for Amazon but also for the broader e-commerce industry.
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