Amazon made more than $1B using secret algorithm called 'Project Nessie,' FTC says

Amazon made more than $1 billion in excess profits by employing a secret algorithm codenamed “Project Nessie” that inflated prices, according to newly unredacted portions of the Federal Trade Commission (FTC)’s antitrust lawsuit against the e-commerce giant.

Project Nessie, which Amazon used between 2015 and 2019, was able to raise prices on and off the platform by predicting whether other online stores would follow an Amazon price hike, the FTC said.

Using these predictions, the agency alleged, Amazon would raise prices when it was most likely to be followed and would maintain the higher price after other online stores adopted similar price hikes.

“The sole purpose of Project Nessie was to further hike consumer prices by manipulating other online stores into raising their prices,” the FTC said in the filing released Thursday.

“The additional profit Amazon attributed to Project Nessie is money that Amazon shoppers would have kept in their pockets if not for Amazon’s use of Project Nessie,” it added. 

Amazon reportedly used the secret algorithm to set prices for more than 8 million items purchased by customers in one month in 2018. That year, the e-commerce giant estimated Project Nessie brought in an additional $334 million in profits.

The FTC alleged that between 2016 and 2018, the algorithm generated more than $1 billion in excess profits for Amazon. However, the agency suggested this figure does not account for the additional amount shoppers paid at other stores because of Project Nessie and is “likely far higher.”

While the algorithm typically ran continuously, Amazon would pause Project Nessie during the holiday shopping season and Prime Day due to “increased media focus and customer traffic,” according to the filing.

“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 FTC said.

Amazon halted its use of Project Nessie in 2019 in the face of regulatory scrutiny. However, it considered running experiments to improve the algorithm’s effectiveness in 2020 and 2021, and an executive reportedly suggested turning their “old friend Nessie” back on in early 2022 to boost profits, according to the filing.

“There are no technical barriers to Amazon resurrecting — or even expanding — its use of Project Nessie, just as it repeatedly has in the past,” the FTC warned. “Amazon could readily reverse the current pause and begin using Nessie again at any time to hike prices for consumers and undermine competition.”

However, Amazon spokesman Tim Doyle said the FTC’s filing “grossly mischaracterizes” the tool.

“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 in a statement. “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 FTC and a bipartisan coalition of 17 state attorneys general sued Amazon in late September, accusing the company of using anti-competitive measures that punish sellers and deter other online retailers from offering lower prices.

“Amazon is a monopolist," the agency said in its filing.

"It exploits its monopolies in ways that enrich Amazon but harm its customers: both the tens of millions of American households who regularly shop on Amazon’s online superstore and the hundreds of thousands of businesses who rely on Amazon to reach them."

--Updated at 1:44 p.m.