Amazon used an algorithm code-named “Project Nessie” to test how much it could raise prices in a way that competitors would follow, according to redacted portions of the Federal Trade Commission’s monopoly lawsuit against the company. From a report: The algorithm 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, according to people familiar with the allegations in the complaint. In instances where competitors didn’t raise their prices to Amazon’s level, the algorithm — which is no longer in use — automatically returned the item to its normal price point.
The company also used Nessie on what employees saw as a promotional spiral, where Amazon would match a discounted price from a competitor, such as Target.com, and other competitors would follow, lowering their prices. When Target ended its sale, Amazon and the other competitors would remain locked at the low price because they were still matching each other, according to former employees who worked on the algorithm and pricing team. The algorithm helped Amazon recoup money and improve margins. The FTC’s lawsuit redacted an estimate of how much it alleges the practice “extracted from American households,” and it also says it helped the company generate a redacted amount of “excess profit.” Amazon made more than $1 billion in revenue through use of the algorithm, according to a person familiar with the matter. Amazon stopped using the algorithm in 2019, some of the people said. It wasn’t clear why the company stopped using it.
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