Amazon’s Project Nessie: Unveiling the Billion-Dollar Algorithm That Shaped Prices

In a shocking revelation, The Wall Street Journal has uncovered Amazon's secret weapon, 'Project Nessie,' a covert algorithm that reportedly contributed over $1 billion to the tech giant's revenue. The Federal Trade Commission (FTC) recently filed a lawsuit against Amazon, accusing the company of maintaining an illegal monopoly and wielding outsized influence on consumer prices.

The core of the FTC's case lies in redacted portions of the complaint, where Project Nessie takes center stage. Allegedly operational for several years, Nessie was designed to manipulate competitors' pricing algorithms, coercing them into higher prices and paving the way for Amazon to bolster its profits across various shopping categories.

The Investigation

Sources familiar with the matter disclosed to The Wall Street Journal that Amazon deployed its extensive surveillance network to stifle price competition. Nessie, in particular, played a pivotal role in detecting and deterring discounting, artificially inflating prices not only on Amazon but also across other major online shopping destinations. Competitors, in response to Nessie's tactics, reportedly raised their prices, defying the conventional wisdom that lower prices lead to increased sales.

The FTC contends that Amazon's strategic use of Nessie disrupted the natural market dynamics, teaching rivals that lower prices are unlikely to result in enhanced market share—a contradiction to the principles of a well-functioning market. The alleged impact was not merely on Amazon's direct platform but resonated across the entire e-commerce landscape.

Surprisingly, Amazon reportedly ceased using Project Nessie in 2019, without a clear explanation for its discontinuation, as revealed by insider sources.

FTC spokesperson Douglas Farrar emphasized the need for transparency, urging Amazon to lift redactions and allow public access to the complete scope of the alleged monopolistic practices. In response, Amazon spokesperson Tim Doyle argued that the FTC's allegations grossly mischaracterize Project Nessie. Doyle stated that the project aimed to prevent unsustainable outcomes arising from price matching and was discontinued when it failed to achieve its intended purpose.

David Zapolsky, Amazon's senior vice president of global public policy and general counsel, asserted in a blog post that the FTC fundamentally misunderstands retail markets. Zapolsky argued against the idea that matching low prices would somehow lead to higher prices, claiming that stopping such practices, as suggested by the FTC, would be anticompetitive and anti-consumer.

The FTC's case against Amazon extends beyond Project Nessie, alleging that the company's far-reaching schemes impact billions of dollars in retail sales annually and affect millions of shoppers. John Newman, the deputy director of the FTC’s Bureau of Competition, expressed the significance of the case in the context of US antitrust law.

More Attention Needed: Unraveling the Web of Algorithmic Dominance

Stacy Mitchell, co-director of the Institute for Local Self-Reliance, expressed her astonishment on X (formerly Twitter), highlighting the lack of attention from policymakers on how dominant online firms can manipulate prices upward without facing detection or penalties. Mitchell, along with other researchers, had previously warned about the potential negative consequences of algorithms in the retail sector.

While Project Nessie may be a closed chapter, Mitchell suggests that other pricing algorithms within Amazon might still be operational. The FTC's success in proving that Amazon's algorithms have harmed competition could potentially disrupt ongoing practices.

Luc Rocher, a lecturer at the Oxford Internet Institute, shared Mitchell's sentiments on X, noting that Amazon's algorithm aligns with predictions made in a study earlier this year. Rocher's study, published in the journal Nature Machine Intelligence, warned about the risks associated with dominant firms manipulating competitors' pricing algorithms, potentially leading to increased prices for consumers.

The FTC's complaint, according to Rocher, validates the prediction that pricing algorithms can be manipulated using 'adversarial collusion,' a concerning anti-competitive practice. He emphasized the subtlety and difficulty in detecting such practices, calling for further collaboration between academics and policymakers.

Rocher's group proposed the need for regulators to provide more guidance on algorithmic pricing, ensuring transparency and accountability from online retailers. They argue that the current lack of transparency poses risks in various online markets and advocate for a collective effort to address these issues for the broader benefit of society. As regulators in the US, the European Union, and the United Kingdom may not be fully prepared to detect such anticompetitive practices, the call for increased vigilance and collaboration becomes paramount.