The Federal Trade Commission alleges that Amazon’s “Project Nessie” was designed to gauge the impact of its product price increases on the broader retail market, monitoring whether its rivals followed its lead, according to the Wall Street Journal.
The report sheds new light on a heavily redacted portion of the FTC’s antitrust suit, filed against Amazon last week in U.S. District Court in Seattle. If other retailers didn’t raise their prices in turn, the Project Nessie algorithm dropped Amazon’s prices back to normal, the FTC alleges, according to the WSJ report.
It’s part of the FTC’s effort to show Amazon’s broader influence in online retail, and the consequences of what the agency describes as monopoly power.
Amazon contends that the Project Nessie allegations, like much of the antitrust suit, misrepresent its actions and offer a distorted view of e-commerce pricing dynamics.
“The FTC’s allegations grossly mischaracterize this tool,” an Amazon spokesman said in a statement. “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.”
This is consistent with reporting on Project Nessie in the book “Winner Sells All” by journalist Jason Del Rey. According to the book, “Amazon’s pricing tool would repeatedly lower the price on an item to match its competitor, leading to what insiders dubbed a death spiral.”
The new WSJ report references this aspect of Project Nessie, as well:
“The company also used Nessie on what employees saw as a promotional spiral, where Amazon would match a discounted price from a competitor, such as Target.com, and other competitors would follow, lowering their prices. When Target ended its sale, Amazon and the other competitors would remain locked at the low price because they were still matching each other, according to former employees who worked on the algorithm and pricing team.”
A 2018 Amazon blog post described Nessie as “a system used to monitor spikes or trends on Amazon.com” (as well as the name of an Amazon office building).
The FTC is focusing heavily on Project Nessie. It’s referenced by name 16 times in the public version of the 172-page FTC lawsuit. A dedicated subsection on Project Nessie spans nearly four pages. The complaint reads, in part, “Amazon’s Project Nessie has already extracted over [redacted] from American households.”
The Wall Street Journal, citing an unnamed person familiar with the matter, says Amazon made more than $1 billion in revenue as a result of the algorithm.
By default, non-public information is redacted from such complaints to give a corporate defendant the opportunity to make its case to the court to keep trade secrets and other potentially sensitive competitive information under wraps.
“Amazon has 14 days from the entry of a temporary sealing order to provide legitimate justification for preventing this information from being revealed,” FTC spokesman Douglas Farrar said last week. “We do not believe that there are compelling reasons to keep much of this information secret from the public.”
Amazon issued an extensive response to the FTC’s complaint last week, saying it’s based on a “fundamental misunderstanding of retail,” a twisted definition of the relevant markets needed to find monopoly power, and a misleading narrative of Amazon’s actions, intentions, and impact on sellers and consumers.
