In a significant development, Amazon.com is facing allegations from the Federal Trade Commission (FTC) of utilizing a secretive algorithm to increase prices while also destroying internal messages. This latest revelation comes as part of the FTC's ongoing antitrust lawsuit against the retail giant.
Battle Against Monopoly Lawsuit
Amazon, identified by the ticker symbol AMZN, is currently engaged in a legal battle against an FTC monopoly lawsuit led by Chair Lina Khan and supported by 17 states. Unveiled on Thursday, the unredacted portions of the FTC's original complaint, filed in September, offer further insight into the case.
A Closer Look at Allegations
The FTC accuses Amazon of engaging in "anticompetitive conduct," which includes anti-discounting measures that penalize sellers and discourage other online retailers from offering lower prices than Amazon's. However, Amazon vehemently denies these allegations, claiming they are baseless.
Secrets of 'Project Nessie'
The unredacted details shed light on intriguing aspects of the case. It is revealed that Amazon made over $1 billion in additional profit through an algorithm called 'Project Nessie' from 2014 to 2019. This algorithm was specifically designed to test Amazon's ability to raise prices and influence competitors to follow suit. Notably, Amazon discontinued its use of 'Project Nessie' when it became wary of public scrutiny.
Tim Doyle, a spokesperson for Amazon, rebuked the FTC's claim, stating that the allegations regarding the algorithm were "grossly mischaracterized." According to Doyle, 'Nessie' was implemented to prevent extreme outcomes resulting from price matching that could render prices unsustainable. He confirmed that the project only ran for a limited period on a small selection of products before being abandoned several years ago.
A Pivotal Moment for the FTC
Prospects of a Breakup: Analysts and Stockholders React to Amazon's Legal Woes
Amazon, the e-commerce giant, is facing the possibility of a breakup as the Federal Trade Commission (FTC) makes its case against the company. While analysts have examined the potential ramifications of such a separation, stockholders appear unperturbed for now. In premarket trading on Friday, Amazon shares remained largely unchanged at $138.13, with the stock slightly up from its value at the time the FTC lawsuit was initially filed.
Should a breakup occur, it would likely involve dividing Amazon's own retail operation from its third-party retail platform or marketplace. The FTC's lawsuit draws attention to internal documents that reveal Amazon executives acknowledging a "punitive aspect" to its requirements for third-party sellers.
This legal face-off between the FTC and Amazon has placed third-party sellers in a precarious position. Yoni Mazor, the chief growth officer of GETIDA—an organization that provides services for Amazon sellers—explains their dilemma: "While third-party sellers are inclined to welcome potential cost reductions by Amazon, which could boost their operating margins, they are also cautious about the possible fragmentation of Amazon. They fear this could undermine the e-commerce giant's appeal to consumers."
Furthermore, the FTC alleges that Amazon made efforts to obstruct its investigation into the company's business practices. One such attempt involved using the messaging app Signal, which has a feature that automatically deletes messages. Despite being explicitly instructed not to do so, Amazon used Signal to destroy over two years' worth of communications. However, Amazon claims that it voluntarily disclosed its employees' use of Signal to the FTC and cooperated by providing access to these conversations, even when they were unrelated to the investigation.
The unfolding legal battle between Amazon and the FTC raises significant questions about the future of this retail giant. As the case proceeds, both analysts and stockholders will closely monitor how it could potentially reshape the landscape of e-commerce.