A picture taken on Nov. 8, 2018, shows the Amazon logo displayed outside the group’s distribution center in Dortmund, Germany. (AFP via Getty Images)

In the Federal Trade Commission's monopoly lawsuit against Amazon, it was revealed that the company employed the "Project Nessie" algorithm to experiment with price increases, gauging how much they could increase prices while still having competitors follow suit, The Wall Street Journal reported.

The report stressed that Amazon used the algorithm to enhance its profits on various products in different shopping categories.

Due to Amazon's dominant position in e-commerce, competitors raised their prices, resulting in higher costs for customers, as indicated by individuals familiar with claims in the complaint.

In instances where competitors didn't match Amazon's price increases, the algorithm, which is now discontinued, would automatically return the item to its original price.

Amazon also employed the algorithm Nessie for what employees perceived as a promotional loop. In this scenario, Amazon would match a discounted price offered by a competitor like Target.com, prompting other competitors to do the same, thereby lowering their prices.

Even after Target concluded its sale, Amazon and the other competitors would continue to maintain the reduced price because they were still matching each other. This information comes from former employees who were involved with the algorithm and pricing team, as per the report.

The algorithm proved beneficial for Amazon in terms of recovering funds and enhancing profit margins. The FTC's lawsuit, however, withheld specific figures concerning how much it claims this practice cost "American households."

Additionally, the suit mentioned that the algorithm aided the company in generating an undisclosed amount of "excess profit." According to an insider, Amazon generated over $1 billion in revenue through the algorithm's utilization.

“The FTC’s allegations grossly mischaracterize this tool,” an Amazon spokesperson said as quoted by WSJ.

“Project Nessie was a project with a simple purpose—to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable. 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,” the spokesperson added.

In further detail, the FTC's complaint argued that Amazon's monopoly power, as seen in Project Nessie and other cases, had wide-ranging effects on increasing retail prices for consumers.

The FTC did not provide a comment on the censored content within the complaint. However, FTC spokesperson Douglas Farrar stated, “We once again call on Amazon to move swiftly to remove the redactions and allow the American public to see the full scope of what we allege is their illegal monopolistic practices.”

A key point raised by the FTC is that Amazon's control over third-party sellers on its platform results in elevated prices for consumers, including those making purchases from competing sellers.

A love-hate relationship

During recent years, charges for Amazon sellers have significantly increased, with the company now taking almost half of the revenue generated from every sale made by a third-party seller on its platform.

A recent report from the Institute for Local Self-Reliance, a research and advocacy organization, reveals that between 2014 and 2023, Amazon's share of sales from third-party sellers climbed from 19% to 45%. The report encompasses various fees charged by Amazon for selling on its platform, advertising, and order fulfillment. Furthermore, over 60% of Amazon's total retail sales come from third-party sellers.

According to the FTC, sellers often feel compelled to utilize Amazon's logistics program to be eligible for inclusion in Amazon's Prime program, and they purchase ads on Amazon.com to ensure their products reach the platform's extensive customer base.

“Amazon’s one-two punch of seller punishments and high seller fees often forces sellers to use their inflated Amazon prices as a price floor everywhere else,” the complaint says.

Jess Nepstad, a vendor of outdoor coffee products, expressed that he conducts only 40% of his sales via Amazon due to his concerns about becoming excessively dependent on the retail platform.

He said, “It’s a love-hate relationship,” adding that “They can turn the switch on you in a blink of an eye, and you can be out of business.”