Amazon Made $1 Billion Through Secret Price Raising Algorithm, Says FTC (reuters.com) 60
Amazon used a secret algorithm to boost prices to U.S. households by more than $1 billion, says the FTC in ia new court filing. "The FTC lawsuit was filed in September but many details were withheld until Thursday when a version of the lawsuit with fewer redactions was made public in U.S. District Court in Seattle," notes Reuters. From the report: Amazon, which has 1 billion items in its online superstore, created a "secret algorithm internally code named 'Project Nessie' to identify specific products for which it predicts other online stores will follow Amazon's price increases. ... Amazon used Project Nessie to extract more than a billion dollars directly from Americans' pocketbooks," the FTC said.
Amazon began testing the pricing algorithm in 2010 to see if other online retailers tracked its prices and to raise prices for products that were likely to be tracked by competitors, the complaint said. After outside retailers began matching or increasing their own prices, Amazon would continue to sell the product at an inflated price, the FTC alleged, which resulted in $1 billion in excess profit. Amazon paused the algorithm during its Prime Day sales events and the holiday shopping season when there was more media and customer attention on the online retailer, the FTC said.
"After the public's focus turned elsewhere, Amazon turned Project Nessie back on and ran it more widely to make up for the pause," the lawsuit said. Amazon in April 2018 used it to set prices for more than 8 million items purchased by customers that collectively cost almost $194 million, the complaint said, before pausing it in 2019. Amazon retail executive Doug Herrington in January 2022 asked about using "old friend Nessie, perhaps with some new targeting logic" to boost profits for Amazon's retail arm, the complaint said. The FTC complaint also accuses Amazon of seeking to hide information about operations from antitrust enforcers by using the Signal messaging app's disappearing message feature and said the company destroyed communications from June 2019 to early 2022. Amazon also required sellers using its Prime feature to utilize its logistics and delivery services, leading to increased fees for sellers who used its fulfillment services from 27% in 2014 to 39.5% in 2018, as per the FTC. Furthermore, the complaint mentioned that Amazon treated Walmart.com differently, not allowing it to sell on its platform and allegedly deterring Walmart from offering discounts to shoppers who picked up their purchases from Walmart stores.
Further reading: Amazon Boosted Junk Ads and Deleted Messages To Thwart Antitrust Probe, FTC Says
Amazon began testing the pricing algorithm in 2010 to see if other online retailers tracked its prices and to raise prices for products that were likely to be tracked by competitors, the complaint said. After outside retailers began matching or increasing their own prices, Amazon would continue to sell the product at an inflated price, the FTC alleged, which resulted in $1 billion in excess profit. Amazon paused the algorithm during its Prime Day sales events and the holiday shopping season when there was more media and customer attention on the online retailer, the FTC said.
"After the public's focus turned elsewhere, Amazon turned Project Nessie back on and ran it more widely to make up for the pause," the lawsuit said. Amazon in April 2018 used it to set prices for more than 8 million items purchased by customers that collectively cost almost $194 million, the complaint said, before pausing it in 2019. Amazon retail executive Doug Herrington in January 2022 asked about using "old friend Nessie, perhaps with some new targeting logic" to boost profits for Amazon's retail arm, the complaint said. The FTC complaint also accuses Amazon of seeking to hide information about operations from antitrust enforcers by using the Signal messaging app's disappearing message feature and said the company destroyed communications from June 2019 to early 2022. Amazon also required sellers using its Prime feature to utilize its logistics and delivery services, leading to increased fees for sellers who used its fulfillment services from 27% in 2014 to 39.5% in 2018, as per the FTC. Furthermore, the complaint mentioned that Amazon treated Walmart.com differently, not allowing it to sell on its platform and allegedly deterring Walmart from offering discounts to shoppers who picked up their purchases from Walmart stores.
Further reading: Amazon Boosted Junk Ads and Deleted Messages To Thwart Antitrust Probe, FTC Says
"the company destroyed communications" (Score:5, Interesting)
This is destruction of evidence, and should be severely punished.
Re: "the company destroyed communications" (Score:3, Informative)
Re: "the company destroyed communications" (Score:5, Insightful)
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Huh, interesting.
I was looking at this document: https://jatheon.com/blog/email... [jatheon.com]
Maybe I'm wrong?
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There are some statutory requirements for record retention, but outside of regulated industries (typically financial) there is no general requirement to preserve email. Note that the site you are linking to is a company that sells email archiving products, and they are suggesting their products as a tool to remain compliant with various regulations. It is in their interests to make you believe that what they are selling is required.
With that said, there is a legal duty to preserve evidence that may be rel
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Thank you for your explanation. I don't live in the USA, therefore I am unaware of these details.
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Maybe the FTC could require amazon to use /. for all internal communications. No deletions ever! Not even dups [slashdot.org].
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Outside of regulated industries, no company has an obligation to save their messages and every real company has deletion policies. They were not deleting messages subject to subpoena.
Oh, they're an unregulated industry? Well now that's a relief. After all we wouldn't want a planet full of dying competitors to get the idea that some online bookstore known as "Amazon" was a monopoly in need of regulation or anything. /s
Hell of a way to demonstrate sound moral and ethical practices too...you know for those highly regulated industries they ARE involved in.
Re:"the company destroyed communications" (Score:5, Insightful)
I'll believe corporations are people when Texas executes one.
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Honest Question (Score:5, Interesting)
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That they figured that if a person purchased items 1 and 2 they would then be willing to purchase 3 at a higher price go for them as a business, bad for me as that person, but why should that be criminal.
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It's collusion. It's no different from the lysine price fixing scandal in which ADM participated. https://en.wikipedia.org/wiki/... [wikipedia.org]
How so?
Amazon set a price. Their competitors elected to increase their prices to match. They are the ones who decided they should follow in order to maximize their own profits. They could have kept their prices where they were, forcing Amazon to lower their prices to compete. But those other companies chose not to.
That Amazon chose to look out the window at the store across the street to see if they were price-matching isn't collusion or price-fixing. This is just.. raising prices, discovering you'
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Doesn't collusion require some form of communication among the colluders? The ADM case involved meetings and agreements among vendors. Raising prices where there is reason to believe other vendors will follow -- and not leave the initial raiser "hung out to dry" -- is not price fixing.
Re: Honest Question (Score:4, Informative)
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I would argue that Amazon was *explicitly* communicating with the other entities through their algorithm. The entire point of the algorithm was to ask other retailers if they will raise their prices when amazon raises it's prices. This wasn't just a one off thing, it was done over and over again to build an information model. it's one thing if a retailer or even multiple retailers to increase their prices concurrently due to varying factors (increasing labor costs, high demand, etc), but it's another thi
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Re:Honest Question (Score:5, Interesting)
Its not a prediction, its influencing price, they are using their position to increase the price of products.
to identify specific products for which it predicts other online stores will follow Amazon's price increases
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It's a prediction of whether price increases will "stick," i.e., are sustainable by demand. Here "stick" means supported by other vendors.
Re: Honest Question (Score:2)
Predicting they will influence their smaller competitors... there's probably a name for that.
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Oh, just like every monopoly ever. Weird!
But this time, it's "in the cloud" and an AI-adjacent screwing of people that are tired of prices flying ever higher, so it's sexy populism dressed up and ready for a ride into an election year.
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It's hard to get past the Amazon hate but I'm still trying to see what was illegal.
If your local grocery store suspected that every time it raised the price of peanuts, other local peanut seekers did so too (for whatever reason, instead of trying to compete) would we prosecute that store for feeling it can quietly and gently raise prices on peanuts?
I don't think so.
This isn't Amazon COMPELLING anyone to raise their prices to suit, it's simply taking advantage of lazy competitors and lazy consumers.
Re:Honest Question (Score:5, Insightful)
So using its market dominance to manipulate prices is OK? The method is a little novel, but they basically just plain old price fixing with a hint of technology thrown in to obfuscate things.
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The competition is to blame. If they didn't have the policy of COPYING Amazon's price increases in the first place, they could undercut Amazon's increases.
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The method is a little novel
Novel? Airlines were using price signaling to raise prices together decades before that. One airline would raise prices and wait to see if others followed. If they did, the price would stay up. If not, they'd lower it back down. I tried to find a link, but it seems there has been so much price fixing in the airline industry that one got lost in the noise.
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Collusion. It requires third parties to participate in artificial inflation of the entity's own prices, and cooperation is not required to be explicit for it to apply.
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Amazon's position as a market influencer (note: monopoly is not required) makes them subject to public trust regulation. As such they are required to act in the best interest of the public, even if doing so runs counter to their own interest.
They know that they can manipulate other sellers into raising prices by setting their own prices higher -they are the market leader, others will follow them by default. They have the sales data (from all sellers on the market) to determine by how much they can raise t
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Everything you wrote is made up. Cite sources for "public trust regulation" that applies to this situation or GTFO.
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It's a technical workaround and still qualifies as "anticompetitive" in spirit.
The free market delivers its best benefits when companies are competing against each other, both in terms of price and quality. When they find a way (ANY way) to work together to keep prices high, they have stopped being competitive. That ruins the benefits of the free market, and is therefore illegal.
New tech brings new ways to do things that old laws don't cover "in particular," but they are still clear violations of the spir
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Is Amazon the only party being punished for this behavior? Seems like more than a few parties are complicit.
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In Soviet Russia, government determines when you can raise prices.
Hi! (Score:2)
Re:Hi! (Score:4, Insightful)
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But there isn't any collusion? There are no agreements, no communication between the parties, Amazon's competitors are just stupid and are matching Amazon's prices when they go up instead of attempting to undercut them. Amazon taking advantage of stupid competitors is not "collusion."
Squeezed (Score:5, Informative)
In the last 10 years, pricing across all of these large almost monopolies has become this way.
Pricing used to be about supply and demand.
Anymore, pricing is all about how much they can squeeze from us, otherwise known as its "value."
--
Put blinders on and plow right ahead. - George Lucas
Re:Squeezed (Score:5, Informative)
Anymore, pricing is all about how much they can squeeze from us, otherwise known as its "value."
Otherwise known as [marketwatch.com] greedflation [marketwatch.com].
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Otherwise known as "what the market will bear," otherwise known as "supply and demand."
The only question is whether the entity has monopoly power, and is therefore able to raise prices INDEPENDENT of supply and demand.
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Yep. We often have the illusion of competition, but once you recognize just how many brands are just tendrils of the same mega-corp, the illusion disappears. At the grocery store you are often comparing prices of two brands that are actually from the same single company, or at best two companies that are "competing" by raising prices in near unison and blaming outside factors as a smoke screen.
There is a limit (Score:2)
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You need to use the tools at your disposal to fight back. CamelCamelCamel is a good place to start. It tracks Amazon prices over time.
This Black Friday, use CCC to check any deals you see. You will find that often they were cheaper in the past, i.e. they aren't really deals at all.
Amazon shoppers bear some responsibility (Score:2, Informative)
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I shop on Amazon so I don't have to go to those other places.
I also like their ridiculously generous return policy. I recently returned a 100 lb, $1100 item for FREE and I couldn't believe they didn't ding me for missing parts and unusable packaging.
Oh, it was also the same price everywhere else.
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The invisible hand (Score:2)
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Leave it alone and let it work. Amazon's competitors voluntarily raised their prices. Had they kept them lower, maybe they could have made more sales.
Oh that's funny. Why lower prices when you can raise them and people still give you their money.
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Why charge less when people will pay more?
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If Amazon gets greedy or stupid, Walmart will step in a promptly clean their clock. Let free-market competition do it’s work.
Unpleasant maybe, but not illegal (Score:2)
This story describes a sharp business practice that enriches the vendor but I see nothing illegal in using surveys of competitors' pricing to set one's own prices. There is no sign of collusion or price-fixing among the vendors. There's just someone paying close attention to their competition and the buyers. What's the crime?
What about the lower price matching algorithm? (Score:2)
Why is no one complaining about that? hmm.
I guess shopping is a lost art and now everyone just blindly thinks 'I want that, click and ship'. At least be aware all the major r
Decentralized Collusive Price Gouging (Score:3)
This is decentralized collusive price gouging, similar to RealPage YieldStar, it's just that different retailers were using differrent solutions to do the job in this case, some probably involving manual monitoring and changes.