Amazon made $1 billion through secret price raising algorithm -FTC

In the world of online retailers, Amazon is a trillion-dollar giant. Yet, the Federal Trade Commission (FTC) raised alarming allegations about the company’s business practices which prompted inquiry of the enterprise. Releasing in a less redacted form, the FTC’s action from September was initially filed and offers information about how Amazon is purportedly employing questionable strategies to maintain its dominance in the online retail market.

The logo of Amazon is seen, November 15, 2022. Credits: Reuters

Amazon’s Secret Strategies

The Algorithmic Price Twists

At the heart of the FTC’s allegations is a clandestine tool known within Amazon as ‘Project Nessie.’ This algorithm was allegedly designed to identify products that could be susceptible to price competition. In simple terms, Amazon used Nessie to predict which products might face price wars with other online retailers. The result? According to the FTC, Amazon squeezed more than a billion dollars out of the pockets of American consumers. On the flip side, Amazon claims that Nessie was a shield against unsustainable low prices caused by price-matching.

Inflating Prices and Profits

The complaint provides a clear picture of Amazon’s 2010 price algorithm test. They were attempting to determine if other internet shops were paying attention by making moves in a high-stakes game of chess. If rivals did bite, Amazon increased the cost of goods they thought would attract interest. After everything calmed down, Amazon kept charging exorbitant pricing for those goods, making an incredible $1 billion in extra profit.

Amazon’s Counterplay

In response to these allegations, Amazon’s spokesperson, Tim Doyle, emphatically rejected the FTC’s narrative. He stated that the FTC “grossly mischaracterizes” the pricing tool and clarified that the company had ceased using Nessie several years ago. According to Amazon, the algorithm was introduced to prevent the market from descending into unsustainable pricing chaos due to relentless price-matching.

Impact on Consumers

The Price We Pay: Consumers may have to shell out more for everyday items if Amazon’s price manipulation becomes the norm.
Erosion of Trust: A tarnished image of Amazon could encourage shoppers to explore other e-commerce options.
Impact on Competitors

Unfair Fights: Smaller online retailers may find it nearly impossible to keep pace with Amazon’s pricing maneuvers, making it tough for them to offer competitive prices.
Market Mayhem: The alleged price manipulation could distort the balance of power within the market, disadvantaging smaller businesses.

Industry-Wide Repercussions

Heightened Scrutiny: The FTC’s lawsuit may be a harbinger of increased regulatory scrutiny, not only for Amazon but for all e-commerce platforms and their pricing tactics.
Setting the Precedent: This case could set a precedent, impacting how regulators approach investigations into other major e-commerce players.

Forcing Sellers into Amazon’s Grasp

In addition to charging Amazon with pricing manipulation, the FTC lawsuit charges the company with pressuring sellers to utilize its delivery and logistics services even when there are less expensive options. Sellers were apparently forced to manage their own warehouses as a result of this practice, which also harmed their competitive position. Average costs charged by Amazon to vendors that use its fulfillment services increased dramatically from 27% in 2014 to a startling 39.5% in 2018.

Impact on Sellers

Limited Freedom: Sellers may feel restricted by Amazon’s logistics and delivery services, limiting their flexibility to opt for more cost-effective alternatives.

Mounting Costs: The increased fees for using Amazon’s fulfillment services could eat into sellers’ margins, leading to higher operational costs.

Market Impact

Competition Constrained: Amazon’s practices may choke off competition by narrowing sellers’ choices, compelling them to rely on Amazon’s services.

Market Disruption: Sellers opting to run their warehouses could disrupt the market, potentially affecting supply chain efficiency.

Conclusion

Through its action against Amazon, the FTC has revealed a world of unscrupulous sellers and covert price manipulation. Should these claims prove to be true, it might have a significant impact on customers, rival businesses, and the ever-changing e-commerce sector overall. The world will be keeping a close eye on this case as it develops, wondering what it might mean for upcoming regulatory actions in the constantly changing field of internet retail.

Originally posted 2023-11-02 18:03:10.


Posted

in

by