Amazon Extracted Over $1 Bn Through Illegal Price Hikes, US FTC Alleges

The US Federal Trade Commission (FTC) has filed a lawsuit against Amazon, alleging that the ecommerce giant employed a series of illegal strategies to maintain its position as a dominant force in the online retail market. The FTC’s case, made public in US District Court in Seattle, claims that Amazon’s actions have harmed both consumers and independent sellers.

Central to the FTC’s case is the allegation that Amazon secretly used an algorithm known as “Project Nessie” to raise prices by more than USD 1 billion. This algorithm, according to the FTC, was designed to identify specific products for which Amazon predicted other online stores would follow its price increases. By doing so, Amazon allegedly extracted over a billion dollars directly from the wallets of American consumers.

Additionally, the FTC contends that Amazon closely monitored its third-party sellers and punished them if they offered lower prices on competing platforms. This practice, the FTC argues, discouraged sellers from providing competitive pricing outside of Amazon’s ecosystem.

Furthermore, the FTC claims that Amazon imposed restrictions on sellers using its Prime feature, requiring them to use Amazon’s logistics and delivery services. This was allegedly done even when sellers may have preferred more cost-effective or alternative delivery services to reach customers on other platforms where they also conducted business.

Amazon responded to these allegations, stating that the FTC “grossly mischaracterizes” the purpose of the pricing tool, “Nessie.” The company argued that Nessie was intended to prevent unsustainable price drops resulting from price matching and it was discontinued several years ago.

While Amazon insists that Nessie is no longer in use, the FTC asserts that there are no obstacles preventing Amazon from reactivating it. The FTC revealed that Amazon began using Nessie in 2014 and, by 2018, had utilised it to set prices viewed by online shoppers more than 400 million times. In April 2018, Amazon used Nessie to set prices for over eight million items, collectively costing almost USD 194 million, before pausing its use in 2019.

The lawsuit also references a statement by Amazon retail executive Doug Herrington in January 2022, indicating an interest in possibly reactivating Nessie to enlhance profits for Amazon’s retail arm.

(Inputs from Reuters)