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Amazon allegedly used secret algorithm to raise prices

By Nithya Bose in US business news, posted October 4, 2023

Federal regulators have revealed Amazon’s secret algorithm that tests price increases up to the threshold its competitors would follow.

Sources said the algorithm "Project Nessie" looto raise Amazon's profits across product categories.

They claim it influenced competitors to raise their prices, as Amazon holds power in e-commerce.

If competitors didn’t raise their prices at Amazon's level, the algorithm no longer in use would automatically revert the item to its normal price.

Amazon also used Nessie during promotional pricing cycles, where rivals matched its discounted prices.

It resulted in reduced prices that persisted even after the promotional period ended.

The Federal Trade Commission alleges that Amazon generated over $1 billion in revenue through this algorithm.

Amazon defended its use of Project Nessie, claiming it was designed to prevent price matching from causing unsustainable price reductions.

However, the FTC contends that Amazon's market dominance affects consumer prices across the retail industry.

The FTC maintains that Amazon's control over third-party sellers on its platform leads to higher prices for consumers, even when purchasing from rival retailers.

Due to Amazon's significant reach and customer base, the agency argues that sellers are compelled to use the platform.

The antitrust suit says Amazon "punishes" sellers who offer lower prices at other retailers by downgrading their listings.

Charges to Amazon sellers have increased significantly in recent years.

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The company now takes almost half of each sale third-party sellers make on its platform.

The FTC's complaint asserts sellers feel compelled to use Amazon's logistics program.

They buy advertisements on Amazon.com to reach its extensive customer base, further contributing to price inflation across the retail sector.

While Amazon has improved communication with sellers and provided them with analytical tools, some sellers have expressed concerns about the influence of advertising on their sales.

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The FTC's complaint also claims that the proliferation of Amazon ads has negatively impacted customers' shopping experience.

Amazon's size and influence present a complex situation for sellers.

While the platform offers access to a vast customer base, some sellers are cautious about over-reliance on Amazon.

It’s due to the company's ability to alter terms and conditions rapidly.

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