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Wednesday, December 6, 2023
Courthouse News Service
Wednesday, December 6, 2023 | Back issues
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Amazon artificially spiked prices and interfered with antitrust investigation, FTC claims

Unsealed portions of the Federal Trade Commission’s antitrust suit against Amazon reveal several tactics the company reportedly used to drive up consumer costs, degrade customer experiences and interfere with the government’s antitrust investigation.

(CN) — New details surfaced Thursday in an antitrust probe against Amazon after a new public complaint from the Federal Trade Commission accused Amazon of using a secret algorithm to raise customer prices and impeding the agency’s investigation by deleting two years’ worth of internal communications from an encrypted messaging app.

The clarified allegations from the new yet still-redacted complaint arrive just over a month after the FTC joined 17 states in suing Amazon for what FTC Chair Lina Khan called “a set of punitive and coercive tactics to unlawfully maintain its monopolies.”

The original complaint, filed in the U.S. District Court for the Western District of Washington, was heavily redacted — but court filings on Thursday clarified government claims against the company. Among other things, the feds say Amazon deployed a secret price-raising algorithm codenamed “Project Nessie” that extracted over a billion dollars from Americans between 2014 and 2019.

The FTC claims Amazon created the algorithm after learning that other online stores’ pricing algorithms followed their controlled prices. In turn, Amazon realized it could maintain increased prices on certain products without alerting consumers, allowing it to generate over $1 billion in additional profit between 2016 and 2018, according to the FTC.

“Amazon used Project Nessie to increase prices on products that Amazon had already been selling at a profit,” the agency states in the complaint. “The sole purpose of Project Nessie was to further hike consumer prices by manipulating other online stores into raising their prices.”

The FTC also claims Amazon repeatedly paused Project Nessie to avoid public detection of the algorithm’s higher prices — only to turn the algorithm back on when public scrutiny receded.

According to the complaint, Amazon paused the algorithm in 2019 “only when regulatory scrutiny, including the Federal Trade Commission’s initiation of the investigation that led to this complaint, caused Amazon to superficially change or conceal many of its practices.”

But that investigation, the agency claims, was impeded by Amazon executives who “systematically and intentionally deleted internal communications using the ‘disappearing message’ feature of the Signal messaging app.”

“Amazon prejudicially destroyed more than two years’ worth of such communications — from June 2019 to at least early 2022 — despite plaintiffs’ instructing Amazon not to do so,” the complaint states.

In a statement, Amazon spokesperson Tim Doyle called the FTC’s claims “baseless and irresponsible" and said the company had been forthright about employee use of Signal, an encrypted messaging app.

“Amazon voluntarily disclosed employee Signal use to the FTC, painstakingly collected Signal conversations from its employees’ phones and allowed agency staff to inspect those conversations even when they had nothing to do with the FTC’s investigation," the statement read.

Doyle said the feds had also mischaracterized Amazon’s use of Project Nessie.

“Nessie was used to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable," Doyle said. "The project ran for a few years on a subset of products, but didn’t work as intended, so we scrapped it several years ago.”

Unredacted sections on the complaint also reveal the source behind Amazon’s long list of sponsored items for product search results.

According to the FTC, Amazon founder and former CEO Jeff Bezos instructed the company’s advertising team to increase advertisements in 2016 on the grounds that advertising profits “eclipsed the revenue lost by degrading consumers’ shopping experience.”

Paid advertisements also steer Amazon shoppers toward higher-priced products, the FTC claims. The agency cited an internal Amazon study from 2018 that found sponsored products had higher prices than adjacent organic results, making it more difficult for customers to find lower-priced items and causing the site’s overall average sales price to increase.

Another internal study, the FTC said, shows how Amazon engineers found higher advertising loads decreased customer purchase rates while increasing search abandonment — a finding they accepted because the “qualitative harms, the team concluded, ‘are vastly outweighed in the short term by ad revenue.’”

Doyle denied these claims as well.

“The claim that Amazon leadership directed employees to accept more advertising defects that would degrade the customer experience is grossly misleading and taken out of context," he stated, "and does not reflect Amazon’s longstanding dedication to continually improving the customer experience.”

The Amazon spokesperson added that Kantar, “an independent data and insights firm, found Amazon’s advertising to be the most useful and relevant to customers around the world.”

Overall, the government’s lawsuit stops short of seeking to break up Amazon.

Nonetheless, it accuses the company of using “a set of interlocking anticompetitive and unfair strategies to illegally maintain its monopoly power.”

“Amazon is a monopolist that uses its power to hike prices on American shoppers and charge sky-high fees on hundreds of thousands of online sellers,” John Newman, deputy director of the FTC’s Bureau of Competition, said in a statement. “Seldom in the history of U.S. antitrust law has one case had the potential to do so much good for so many people.”

The antitrust suit also accuses Amazon of requiring sellers to use Amazon’s fulfillment service to qualify for Prime eligibility, which regulators say is necessary for conducting business on the site.

The requirement makes it much more expensive for sellers to use other platforms, the government says. And yet when combined with other fees, sellers could be forced to pay close to 50% of their revenue to Amazon regardless, according to the lawsuit.

Shoppers also pay a price, the suit says, as searches favor Amazon’s products over others that might be of better quality. That's because according to the government, searches replace organic results with paid advertisements.

The FTC is joined in the lawsuit by a range of states, including Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island and Wisconsin.

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