According to redactions in an antitrust lawsuit filed by the Federal Trade Commission (FTC) against Amazon.com (AMZN), Amazon used an algorithm code-named "Project Nessie" to test price increases that competitors would follow.
According to people familiar with the complaint, the algorithm helped Amazon drive up profits on a wide range of goods, and because of the company's influence in e-commerce, it led competitors to raise prices and charge customers more. If a competitor doesn't raise the price of an item to Amazon's level, the algorithm automatically lowers the item back to its normal price. Amazon no longer uses the algorithm.
The company's use of Nessie has also been blamed by employees for creating a vicious cycle of promotions, where Amazon matches the discounted prices of competitors such as Target.com and other competitors follow suit. According to former employees of the algorithm and pricing team, when Target ended the promotion, Amazon and other competitors would still keep the promotional prices because they were still matching each other's prices.
The algorithm has helped Amazon recoup costs and boost margins. In its lawsuit, the FTC redacted its estimate of how much the practice "extracted from American families" and said it helped Amazon generate "excess profits." According to a person familiar with the matter, Amazon has generated more than $1 billion in revenue by using the algorithm.
Some of these sources said Amazon stopped using the algorithm in 2019. It is not clear why the company stopped using the algorithm.