Amazon (AMZN), the e-commerce juggernaut, is under the spotlight as revelations from redacted parts of the Federal Trade Commission's (FTC) monopoly lawsuit detail the company's use of a secret algorithm named “Project Nessie”. This algorithm, designed to test the extent to which Amazon could elevate prices expecting competitors to match, enhanced Amazon's profit margins across a spectrum of products. If rivals did not match Amazon's pricing, the algorithm would revert the product's price to its original value. As per sources, this approach not only increased Amazon's earnings but prompted other businesses to raise their prices due to Amazon's substantial influence in e-commerce.
Beyond "Project Nessie", the FTC also scrutinizes Amazon's dominance over third-party sellers on its platform, suggesting that this leverage results in higher prices for consumers. Many sellers, due to Amazon's vast reach and logistics capabilities, feel bound to use the platform despite its restrictive pricing regulations. Amazon dictates that these sellers cannot offer their products at cheaper rates elsewhere, essentially making their Amazon price the baseline. This policy, combined with mounting fees charged by Amazon, results in an overall inflation of retail prices.
The FTC's case emphasizes that over the past decade, Amazon's cut from third-party sales escalated from 19% to 45%. This share includes fees associated with selling, advertising, and fulfilling orders on the platform. Most sellers feel obliged to use Amazon's logistics services to qualify for the Prime program and frequently buy advertisements on the platform to tap into its vast customer base.
Internally, debates have arisen among Amazon executives about the company's policies and their impact on retail pricing. One significant concern was whether the abundance of advertisements was deteriorating the customer shopping experience. Amazon's former CEO, Jeff Bezos, once highlighted the dichotomy between an ad-free Amazon that offers higher prices and an Amazon with ads that offers products at lower prices. For many sellers, collaborating with Amazon is a "love-hate relationship" due to the platform's overwhelming control and influence.
