FTC Exposes Amazon's Hidden Algorithm Amid Antitrust Concerns

Amazon.com Inc AMZN is under scrutiny following revelations about a secret algorithm, code-named "Project Nessie," that the e-commerce giant allegedly used to manipulate prices. 

The Federal Trade Commission (FTC) has included these allegations in its monopoly lawsuit against Amazon, claiming that the algorithm aimed to test the elasticity of price increases and observe if competitors would follow suit.

Also Read: FTC And States Take On Amazon In Antitrust Battle: What's Going On? (UPDATE)

The algorithm no longer in use was reportedly instrumental in enhancing Amazon's profits across various product categories. 

It was so effective that it boosted Amazon's margins and led competitors to inflate their prices, the Wall Street Journal reports. 

In cases where rivals didn't match Amazon's prices, Project Nessie would revert the prices to their original points.

Project Nessie was not just about raising prices; it also played a role in a promotional spiral. When competitors like Target Corp TGT offered discounts, Amazon would match these lower prices. 

However, even after the competitors' sales ended, Amazon and others remained at reduced prices, locked in a cycle of low pricing. This algorithm was a double-edged sword, capable of inflating and deflating prices depending on the market scenario.

The FTC has not disclosed the exact figures but indicates that Project Nessie "extracted" a significant amount from American households and generated an undisclosed amount of "excess profit" for Amazon. 

The algorithm was reportedly so effective that it contributed over $1 billion in revenue for the e-commerce giant. However, the specifics remain under wraps as Amazon and the FTC continue their legal tussle.

Amazon ceased using Project Nessie in 2019, although the reasons remain unclear. 

Through its top lawyer, David Zapolsky, the company has rebutted the FTC's claims, arguing that the regulatory body misunderstands the dynamics of online pricing and competition. 

Zapolsky asserts that halting Amazon's pricing strategies, as sought by the FTC, would be "anticompetitive and anti-consumer."

The FTC's lawsuit against Amazon is part of a larger narrative of regulatory bodies scrutinizing tech giants for alleged anticompetitive practices. Companies like Apple Inc AAPL and Microsoft Corp MSFT have faced similar challenges.

Price Action: AMZN shares traded lower by 3.77% at $124.58 on the last check Tuesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.