The agency claims a company policy led to higher prices for consumers
November 3, 2023
ConsumerAffairs has been reporting on the ongoing lawsuit between Amazon and the Federal Trade Commission (FTC) and 17 states.
Now, the FTC has made previously redacted parts of its complaint public, bringing to light more information about the ways that Amazon has allegedly been deceiving shoppers over the years.
In once-redacted comments, the FTC has accused Amazons founder Jeff Bezos of pushing out irrelevant ads to consumers using the site. If true,it has made it harder for shoppers to find the things theyre looking for. And it would have also pushed consumersto higher priced items producinggreater revenue for Amazon.
Worsening consumers experience
The updated complaint from the FTC highlights Bezos alleged role in these advertising efforts, including how it harmed consumers shopping experience, while boosting the companys bottom line.
Following directions from its founder and then-CEO Jeff Bezos, Amazon shifted gears so that it now litters its storefront with pay-to-play advertisements," the FTC claims. "Amazon executives internally acknowledge this creates harm to consumers by making it almost impossible for high quality, helpful organic content to win over barely relevant sponsored content.
Notably, Amazon has increased not only the number of advertisements it shows, but also the number of irrelevant junk ads, internally called defects. Mr. Bezos instructed his executives to [a]ccept more defects because Amazon can extract billions of dollars through increased advertising despite worsening its services for customers.
Shoppers were also left paying more for these sponsored items which were dominating real estate on Amazons site. While it remains unclear what the exact difference in price was, CNBC reported on an internal study done at Amazon in 2018 that allegedly found sponsored products were double the price of products that came up organically.
Additionally, third-party sellers struggled to see success with their products, as many had to pay steep advertising fees for their items to get clicks. To offset those costs for the sellers, consumers were likely seeing higher prices at checkout.
Project Nessie
Another key component of the redacted information revealed by the FTC deals with Project Nessie, an algorithm Amazon created to secretly raise prices on its own site and on competitors sites. The FTC wrote in its complaint:
Amazon created a secret algorithm internally codenamed Project Nessie to identify specific products for which it predicts other online stores will follow Amazons price increases. When activated, this algorithm raises prices for those products, and when other stores follow suit, keeps the now-higher price in place.
The complaint goes on to note that Nessie generated more than $1 billion in excess profit for Amazon.
However, the company would work to ensure the algorithm was switched off if itsuspected any kind of scrutiny. The FTC claims the algorithm has been turned on at least eight times between 2015 and 2019.
Despite the allegations, Amazon holds steadfast that this wasnt the intention behind Nessie.
The FTC claims that an old Amazon pricing algorithm called Nessie is an unfair method of competition that led to raised prices for consumers, Tim Doyle, Amazon spokesman, said in a statement. This grossly mischaracterizes the tool. Nessie was used to try to stop our price matching from resulting in unusual outcomes where prices became so low they were unsustainable.