Undisclosed Algorithm Helped Amazon Raise Prices: FTC

Amazon relied on an undisclosed algorithm to help it increase what it charged buyers without risking the company ending up alone at higher price points, a government lawsuit says—the idea was to pull competitors along. "Project Nessie" helped Amazon leverage its market clout, the Federal Trade Commission's monopoly lawsuit says. In the event competitors didn't raise their prices to match Amazon's, the algorithm automatically lowered the item's price back to where it was, according to the suit. The company is no longer using the algorithm, the Wall Street Journal reports.

At other times, Nessie committed Amazon to lower prices. When the online retailer matched a sale price, say, offered by somebody else, competitors would match that, too. When the first sale price ended, everybody else would be stuck there because they were tied to other sites' level, former employees who worked on the project said. The algorithm wasn't publicly known until the FTC filed its complaint last month, per the Verge, and even then, that part of the document was heavily redacted. Amazon said its use of the algorithm is misunderstood.

"The FTC's allegations grossly mischaracterize this tool," a company spokesman said. "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 redacted passages included an FTC estimate of how much money Amazon's use of the algorithm "extracted from American households," per the Journal, as well as how much in "excess profits" Nessie helped the company make. (More Amazon.com stories.)