Title: Federal Trade Commission Accuses Amazon of Maintaining Monopoly through Secret Algorithm
Last week, the Federal Trade Commission (FTC) filed a lawsuit against Amazon, accusing the online retail giant of illegally maintaining a monopoly. The complaint, which was largely redacted, allegedly revealed critical details regarding a secret algorithm that Amazon once used to raise prices across popular online shopping destinations.
According to sources familiar with the FTC’s allegations, the controversy began when Amazon developed an algorithm named “Project Nessie.” This algorithm allegedly manipulated competitors’ pricing algorithms, forcing them into higher prices and giving Amazon an edge in profitability. The Wall Street Journal reported that the algorithm was in use for several years, allowing Amazon to improve its profits while causing competitors to raise their prices and charge customers more.
The complaint filed by the FTC stated that Amazon used its extensive surveillance network to block price competition, inflate prices on and off its platform, and hinder rivals from gaining scale by offering lower prices. Although this information was redacted, sources disclosed that Amazon generated over $1 billion in revenue by utilizing Project Nessie. Furthermore, competitors learned that lowering prices did not result in increased market share or scale but only diminished profit margins, according to the complaint.
Despite removing the algorithm in 2019, sources could not definitively explain why Amazon made this decision. The FTC spokesperson, Douglas Farrar, expressed the agency’s desire for more transparency, urging Amazon to remove redactions in the complaint and allow the public a comprehensive view of the alleged illegal monopolistic practices.
Amazon has yet to respond to these allegations, but in a blog post responding to the FTC’s lawsuit, David Zapolsky, senior vice president of global public policy and general counsel at Amazon, stated that the FTC fundamentally misunderstands how retail markets operate. Zapolsky argued that matching low prices offered by other retailers does not lead to higher prices and claimed that the FTC’s proposed outcome would be anticompetitive and anti-consumer.
The FTC aims to prove that Amazon is stifling competition, particularly in terms of price, and causing harm to consumers. In a press release, the FTC emphasized the significance of the case, as it impacts billions of dollars in retail sales, hundreds of thousands of products, and over a hundred million shoppers. John Newman, the deputy director of the FTC’s Bureau of Competition, stated that this case has the potential to create substantial positive change for numerous individuals.
As the legal battle unfolds, the possible implications for Amazon’s operations and the broader e-commerce industry remain uncertain.