FTC: Amazon’s Hidden Algorithm Boosts Profits by $1B

Amazon’s ‍Secret⁤ Algorithm Allegedly Generated $1 Billion in​ Extra Profit, FTC Claims

The U.S. Federal Trade Commission (FTC) has accused Amazon of creating a secret algorithm, known ⁣as “Project Nessie,” that reportedly helped⁣ the e-commerce giant generate an additional $1 billion in profit. The allegations were revealed in a recently unredacted version of the antitrust lawsuit filed by the FTC and 17 states against Amazon.

According to the ‍complaint, Amazon used Project Nessie to raise prices on its online store, which ⁤in turn influenced prices across the market. As many websites set their prices⁤ to match Amazon’s, the⁤ algorithm manipulated prices on products that other retailers would follow suit with. Once outside retailers increased‌ their prices, Amazon would continue to sell the product‌ at an inflated price, ⁢resulting in the‍ extra $1 ‍billion in profit.

The FTC also claimed that​ Amazon turned the algorithm on and off to ‍avoid scrutiny, stating, “Aware of the public fallout it risks, ​Amazon has turned Project Nessie off during ‌periods⁣ of heightened outside scrutiny and then back on when it thinks that no one is watching.”

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In the complaint,⁣ the FTC revealed that Project Nessie generated significant profits for Amazon, even though ⁤it caused a decrease in unit sales. In 2015, the algorithm’s higher prices reduced ⁣Amazon’s gross sales revenue but increased its profits by an ​extra $363 million. In 2018, Amazon⁢ estimated that ⁢Project Nessie boosted its yearly profits by ⁤$334 million.

The FTC labeled Nessie’s⁣ algorithm as an “unfair method of competition” because it manipulated⁤ other online stores into raising prices, giving Amazon the opportunity to do the same. The complaint stated, “The sole‌ purpose of Project Nessie was to further hike​ consumer prices by manipulating other online stores into raising their prices.”

Amazon spokesperson Tim ​Doyle⁣ responded to the allegations, stating that the FTC “grossly mischaracterizes” the pricing tool and that the⁢ company stopped using it several years ago. However, the regulator claims that Amazon can reactivate the algorithm at any time.

The FTC complaint ⁣also accused Amazon‌ of using the Signal messaging app’s disappearing message⁣ feature to hide ​information from antitrust enforcers. Additionally, the agency alleged that Amazon engaged in “anti-discounting tactics” ​to prevent rivals from offering lower prices and flooded its online store with “pay-to-play​ advertisements” and “irrelevant junk ads” despite knowing the negative impact on consumers.

‘Anti-Discounting Tactics’ and Pushing Junk Ads

The FTC accused⁢ Amazon of using various tactics to prevent rivals from growing by offering lower prices. It also claimed that Amazon used coercive tactics, particularly with its order fulfillment service, to hinder competitors from effectively competing.

Furthermore, the FTC alleged that Amazon flooded‌ its online store ‌with “pay-to-play ⁣advertisements” and “irrelevant junk ads” despite being aware of their negative effects on search results​ and ⁤consumer experience.

Targeting Sellers

The FTC‍ claimed that Amazon required sellers under its Prime feature ⁣to use its logistics and ⁤delivery services, even if they preferred cheaper alternatives or services that‌ catered to other platforms. This ⁣practice allegedly weakened ​competition and discouraged sellers from ⁣running their ‍own warehouses.

The Epoch Times has⁣ reached out to Amazon for⁣ comment. Amazon spokesperson Tim Doyle told Reuters that ⁤the FTC’s allegations mischaracterize the‍ pricing tool and ​that the company stopped​ using⁢ it⁣ years ago. However, ​the ⁢FTC maintains that Amazon can reactivate the algorithm at any time.

Reuters contributed to this article.

What could be ‌the potential implications and consequences for Amazon​ if the allegations ‌are proven true and the company is found guilty‌ of anticompetitive practices?

Responded to ‌the allegations, stating, “We disagree with the FTC’s complaint and will vigorously ‌defend ourselves in court. The allegations in the complaint ‍are unsubstantiated and have no merit.” The spokesperson also emphasized that Amazon strives‌ to provide the ⁢best prices ⁤and selection for its customers.

This lawsuit against Amazon‍ comes amid increasing scrutiny and antitrust concerns surrounding big ⁣tech companies. The allegations against Amazon’s secret algorithm shed light‌ on ‌the potential abuse of market power and the impact on competition and consumer ‍pricing. If proven true, this‍ would be a significant violation of antitrust laws, which aim to ‌promote fair ⁤competition and prevent monopolistic behavior.

The outcome of this case could have far-reaching implications for Amazon and other⁢ e-commerce platforms.​ It may lead to stricter regulations and ‌increased oversight of algorithms⁤ used by companies ​to influence prices and consumer behavior. In recent years, there have‌ been calls for more transparency and accountability in algorithmic systems that shape our online experiences.

Furthermore, this case highlights the need ⁢for consumers and regulators to be vigilant and ​proactive in identifying and addressing anti-competitive practices. As technology continues to evolve and play a⁢ significant role in our daily lives, it is crucial ⁣to ensure that the benefits of innovation⁤ are not outweighed by potential harm to competition and consumer welfare.

In conclusion, the accusations made by the FTC against Amazon’s secret algorithm⁣ raise serious concerns about ⁤market manipulation and unfair competition. The outcome of this case will not ⁤only⁤ determine the ⁢fate of Amazon but also shape the future regulation of algorithms in‌ e-commerce and beyond. ⁤As we await ‌further developments in ‌this⁢ legal battle, it is⁢ a reminder of the ongoing need for robust oversight and⁣ regulatory measures to protect ⁤the interests of consumers and ‌foster healthy market competition.

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