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FTC Reveals: Amazon Utilized Algorithm to Increase Prices on External Websites

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FTC Alleges Amazon Used Algorithm to Raise Prices on Other Sites

Newly unredacted portions of the Federal Trade Commission's (FTC) antitrust lawsuit against Amazon reveal that the company used a secret algorithm to increase prices on external websites. The excerpts, unveiled on Thursday, also allege that Amazon intentionally deleted communication by utilizing the disappearing message feature on the Signal app. Despite instructions not to do so, the FTC claims that Amazon destroyed over two years' worth of communications. Amazon spokesperson Tim Doyle called the FTC's claim "baseless and irresponsible" and stated that the company voluntarily disclosed employee Signal use and provided the conversations to the FTC.

The Impact of the Algorithm

The algorithm, codenamed "Project Nessie," allowed Amazon to predict where it could raise prices and have other shopping sites follow suit. By activating the algorithm, Amazon was able to keep elevated prices in place, generating over $1 billion in excess profits. The FTC alleges that Amazon turned Project Nessie on and off multiple times between 2015 and 2019, using it to set prices for items viewed by over 400 million shoppers in 2018 alone. While Amazon claims the algorithm is currently paused, the company has considered running experiments to improve its effectiveness in 2020 and 2021.

Amazon's Advertising Business and Fulfillment by Amazon (FBA)

The unredacted portions of the lawsuit also shed light on Amazon's advertising business. The FTC claims that then-CEO Jeff Bezos instructed executives to accept more "junk ads" to increase advertising revenue, despite the inconvenience to consumers. Amazon spokesperson Tim Doyle responded by stating that the company provides a mix of organic and sponsored search results to help customers find items quickly and easily. Additionally, the lawsuit provides more details on Amazon's logistics service, Fulfillment by Amazon (FBA). The FTC alleges that Amazon essentially compelled sellers to use FBA and suspended enrollment in the Seller Fulfilled Prime program when other fulfillment providers began advertising their services to sellers. In conclusion, the FTC's allegations against Amazon regarding the use of an algorithm to raise prices on external websites and the deletion of communications during the investigation have significant implications for the company's reputation and legal standing. The outcome of this lawsuit could potentially impact Amazon's business practices and the regulation of e-commerce platforms.

A Hot Take on Amazon's Alleged Price Manipulation

The Federal Trade Commission's (FTC) antitrust lawsuit against Amazon has unveiled some startling allegations that could have far-reaching implications for new businesses. The FTC claims that Amazon used a covert algorithm, "Project Nessie," to artificially inflate prices on external sites, potentially distorting the competitive landscape. If proven, this could raise serious questions about the fairness and transparency of online marketplaces.

Algorithmic Pricing and Its Potential Impact

For new businesses, particularly those in e-commerce, the alleged use of such an algorithm is concerning. It suggests a potential for market manipulation by dominant players, which could stifle competition and innovation. If larger companies can artificially control prices, smaller businesses may struggle to compete on a level playing field.

Implications for Advertising and Fulfillment Practices

The FTC's allegations also shed light on Amazon's advertising and fulfillment practices. The push for more "junk ads" and the alleged compulsion for sellers to use Amazon's logistics service, Fulfillment by Amazon (FBA), could potentially limit the choices and flexibility of businesses using the platform.
Legal and Regulatory Consequences
The outcome of this lawsuit could lead to tighter regulation of e-commerce platforms and more stringent oversight of their practices. This could create a more equitable environment for new businesses but may also introduce additional compliance burdens.
Story First Published at: https://financialpost.com/pmn/business-pmn/amazon-used-an-algorithm-to-essentially-raise-prices-on-other-sites-the-ftc-says
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