Amazon utilized a confidential algorithm known as “Project Nessie” to strategically raise prices without losing its competitive edge, according to a monopolistic lawsuit by the Federal Trade Commission (FTC). The algorithm allowed Amazon to increase prices, prompting competitors to follow suit. In cases where competitors failed to match Amazon’s price increases, the algorithm would automatically lower the price back to its original level. Though Amazon is no longer using this algorithm, as reported by the Wall Street Journal, it had enabled the online retailer to leverage its market influence effectively.
Interestingly, Project Nessie also committed Amazon to lower prices. If Amazon matched a sale price offered by another seller, competitors would also match it. Consequently, when the sale ended, all other sellers would be stuck at that price level since their prices were linked to other sites’ prices. Former employees involved in the project revealed that the existence of the algorithm was not publicly known until the FTC filed its complaint, as stated by Verge. However, even in the complaint, the details about the algorithm were heavily redacted. Amazon claimed that the purpose of Project Nessie was simply to prevent price matching from resulting in unsustainable low prices, and they argue that the allegations by the FTC misrepresent the tool.
According to a spokesperson from Amazon, “The FTC’s allegations grossly mischaracterize this tool.” The spokesperson further explained, “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 redacted portions of the complaint contained an FTC estimate of the amount of money extracted from American households due to Amazon’s use of the algorithm, as well as the excess profits that Nessie generated for the company, according to the Journal. (Read more Amazon.com stories.)
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