Amazon previously used an algorithm called “Project Nessie” to move prices up or down on its products to see how competitors would react, and in some cases led the market to raise prices and forced consumers to spend more, according to the Wall Street Journal.
Project Nessie is one of the more explosive elements to come out of the Federal Trade Commission’s monopoly lawsuit against Amazon. Much of the details behind the code were redacted from the publicly available copy of the lawsuit, but the WSJ uncovered more information about how it operated.
Project Nessie was used to test how much it could raise prices in a way that competitors would follow, the WSJ reported. Those instances resulted in higher prices overall for consumers. In cases where competitors didn’t follow with the price hike, the program would move its prices back to the normal point. Amazon stopped using Project Nessie in 2019, although it’s unclear why.
The details illustrate how Amazon’s has been able to flex the power of its e-commerce platform in a way that allowed it manipulate competitors and pricing, often at the expense of the consumer. The lawsuit is one the biggest legal salvos fired by the government at a Big Tech company at a time when Google is also in the courtroom defending the power of its search business.
Amazon argued the FTC is wrong in its interpretation of the algorithm.
“The FTC’s allegations grossly mischaracterize this tool,” said Amazon spokesman Tim Doyle. “Project Nessie was a project with a simple purpose—to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable. The project ran for a few years on a subset of products, but didn’t work as intended, so we scrapped it several years ago.”
Amazon General Counsel David Zapolsky said a week ago in a statement that the lawsuit would result in fewer products, higher prices and slower deliveries for consumers, and called it “wrong on the facts and the law.”
The FTC declined to comment on the redacted material, but a spokesman Douglas Farrar added, “We once again call on Amazon to move swiftly to remove the redactions and allow the American public to see the full scope of what we allege is their illegal monopolistic practices.”
The program didn’t always lead to price hikes. It was also used to match discounted prices from other retailers such as Target, moving into a “promotional spiral” as Amazon and other competitors moved to the lower prices, only to get stuck there even after Target went back to its normal price, WSJ reported, citing people who worked on the algorithm. But overall, the algorithm helped Amazon recoup money and improve the profitability of its retail business.