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Amazon’s Secret Price-Gouging Algorithm Exposed in Unredacted FTC Documents


Amazon seems determined to maintain its position as the top online retailer, even if it means negatively impacting both its sellers and customers. In September, the FTC filed an anticipated antitrust lawsuit against Amazon, alleging the company’s use of unlawful strategies to maintain its dominance. Previously concealed, today, a mostly unredacted version of the suit was released, shedding light on Amazon’s secret pricing tool, known as Project Nessie. The FTC claims that these algorithms contributed to raising prices by over $1 billion over a span of two years.

Amazon argues that its dominance benefits small businesses by expanding their reach to more consumers. However, the FTC contends that Amazon has become exploitative over time. The company keeps raising fees for third-party sellers, resulting in hardships for smaller businesses and even causing some to go bankrupt. Amazon had previously dismissed these claims as baseless, but the newly revealed documents indicate otherwise.

According to The Wall Street Journal, internal documents referenced in the initial complaint reveal that Amazon’s executives were well aware of the consequences of the company’s policies. Some executives acknowledged that these policies, including demanding that Amazon sellers offer the lowest prices online or face repercussions, had a “punitive aspect.” One executive pointed out that many sellers “live in constant fear” of Amazon penalizing them for not adhering to the ever-changing pricing policy.

The FTC also alleges that the company monitored its sellers and imposed penalties if they offered lower prices on other platforms, which the agency sees as a violation of antitrust laws. Unredacted documents show that Amazon employed secret price gouging algorithms under Project Nessie, leading to a price increase of over $1 billion between 2016 and 2018. It was also revealed that the “take rate” – the amount Amazon earns from sellers using the Fulfillment By Amazon logistics program – rose from 27.6 percent in 2014 to 39.5 percent in 2018, though it remains uncertain if these figures have changed in recent years since that information is redacted.

Amazon’s negative impact extends beyond its sellers. The complaint exposes Amazon’s growing use of ads in search results, with several ad executives within the company acknowledging that these sponsored ads often lack relevance to the initial search and harm the consumer experience on the site.

The FTC alleges that these policies were conceived by Jeff Bezos, Amazon’s founder and former chief executive, with the aim of boosting the company’s profit margins. The complaint even asserts that Bezos directly instructed the advertising team to increase the number of advertisements on Amazon, prioritizing revenue from ads over maintaining a positive shopping experience for consumers.

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