The US Federal Trade Commission has said in a new court filing that retail giant Amazon used strategies to boost profits including one that used an algorithm that boosted prices to households in the US by more than USD 1 billion.
The lawsuit from FTC was filed in September but several details were withheld till Thursday. A version of the lawsuit with fewer redactions was made public in US District Court in Seattle.
The FTC said that Amazon, which has 1 billion items in its online superstore, created a “secret algorithm internally code-named ‘Project Nessie’ to identify specific products for which it predicts other online stores will follow Amazon’s price increases. … Amazon used Project Nessie to extract more than a billion dollars directly from Americans’ pocketbooks.”
Amazon has said that FTC “grossly mischaracterizes” the company’s pricing tool and that its use was stopped several years ago.
“Nessie was used to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable,” said Amazon Spokesperson Tim Doyle.
Amazon began testing the pricing algorithm in 2010 to see if other online retailers tracked its prices and to raise prices for products that were likely to be tracked by competitors, the complaint said.
After outside retailers began matching or increasing their own prices, Amazon would continue to sell the product at an inflated price, the FTC alleged, which resulted in $1 billion in excess profit.
Amazon paused the algorithm during its Prime Day sales events and the holiday shopping season when there was more media and customer attention on the online retailer, the FTC said.
“After the public’s focus turned elsewhere, Amazon turned Project Nessie back on and ran it more widely to make up for the pause,” the lawsuit said.
(With inputs from agencies)