An updated version of the Federal Trade Commission’s antitrust complaint against Amazon was filed Thursday morning in U.S. District Court in Seattle, making public many (but not all) of the details that were previously redacted from the government’s allegations.
The newly unredacted allegations include claims about Jeff Bezos’ behind-the-scenes role in some of the tactics that form the basis for the FTC complaint, dating back to when he was CEO. They also confirm the government’s portrayal of Amazon’s “Project Nessie” as a scheme to raise prices — an interpretation that Amazon vehemently disputes.
Here are some excerpts from the filing, with previously redacted parts in bold.
Amazon recognizes that sellers find “that it has become mores difficult over time to be profitable on Amazon” due to Amazon’s “increasing fees and costs.” Amazon has also quietly and deliberately raised prices for shoppers through a covert operation called “Project Nessie.” Explicitly intended to inflate the prices that shoppers pay, Amazon’s Project Nessie has already extracted over a billion dollars from American households.
In addition to overcharging its customers, Amazon is degrading the services it provides them. Amazon’s online storefront once prioritized relevant, organic search results. 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. 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.” This practice, too, harms both sellers and shoppers alike. Most sellers must now pay for advertising to reach Amazon’s massive base of online shoppers, while shoppers consequently face less relevant search results and are steered toward more expensive products. 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.
Here is Amazon’s statement in response to the advertising allegations:
“The claim that Amazon leadership directed employees to accept more advertising defects that would degrade the customer experience is grossly misleading and taken out of context, and does not reflect Amazon’s longstanding dedication to continually improving the customer experience. Amazon works incredibly hard every day to earn customers trust, and customer feedback on our shopping experience is consistently positive. Amazon works hard to make it fast and easy for customers to find the items they want and discover similar options by providing a mix of organic and sponsored search results based on factors including relevance, reviews, availability, price, and speed of delivery, along with helpful search filters to refine their results. Kantar, an independent data and insights firm, found Amazon’s advertising to be the most useful and relevant to customers around the world.”
Pricing algorithms
Here are newly revealed portions of the complaint with allegations about Amazon’s pricing strategies.
Amazon has implemented an algorithm for the express purpose of deterring other online stores from offering lower prices. This algorithm was conceived by Amazon’s former CEO of its Worldwide Consumer business, Jeff Wilke. According to Mr. Wilke, Amazon deploys this algorithm to avoid a “perfectly competitive market” in which participants lower their prices to a competitive level. Rather than trying to compete, Amazon uses a “game theory approach,” never making the first move and instead disciplining rivals by rapidly copying others’ moves to the penny, both up and down. The goal is to ensure that rivals’ price cuts and discounts do not translate to greater scale, only lower margins. Ultimately, this conduct is meant to deter rivals from attempting to compete on price altogether—competition that could bring lower prices to tens of millions of American households. As a result of this conduct, Amazon predicted, “prices will go up.” Mr. Wilke believes that Amazon’s prediction has borne out and the algorithm has worked just as he envisioned: suppressing price competition by disciplining rival retailers who dare to discount.
Project Nessie allegations
The partially unredacted complaint also details the FTC’s interpretation of Amazon’s “Project Nessie.”
Alongside these anti-discounting tactics, Amazon also goes a step further and hikes prices directly and outright. Amazon created a secret algorithm internally codenamed “Project Nessie” to identify specific products for which it predicts other online stores will follow Amazon’s price increases. When activated, this algorithm raises prices for those products and, when other stores follow suit, keeps the now higher price in place. Amazon has deemed Project Nessie “an incredible success”: it has generated more than $1 billion in excess profit for Amazon. Aware of the public fallout it risks, Amazon has turned Project Nessie off during periods of heightened outside scrutiny and then back on when it thinks that no one is watching.
Tim Doyle, an Amazon spokesperson, said this about Project Nessie in a statement Thursday morning:
“The FTC claims that an old Amazon pricing algorithm called Nessie is an unfair method of competition that led to raised prices for consumers. This grossly mischaracterizes this tool. Nessie was used to try to stop our price matching from resulting in unusual outcomes where prices became so low that they were unsustainable. The project ran for a few years on a subset of products, but didn’t work as intended, so we scrapped it several years ago.”
An “oh, crap” moment
Another portion of the complaint focuses on Amazon’s alleged efforts to suppress products when sellers engage in “multihoming,” offering items across multiple e-commerce platforms.
More from the FTC complaint:
Amazon caught a glimpse of this alternative universe when it temporarily relaxed its coercive conduct. As Amazon recognized, this decision was immediately popular with both shoppers and sellers. But internally, Amazon soon realized that its move could enable greater multihoming, facilitating competition that would threaten Amazon’s monopoly power. An Amazon executive explained to his colleagues that he had an “‘oh crap’ moment” when he realized that this was “fundamentally weakening [Amazon’s] competitive advantage in the U.S. . . . as sellers are now incented to run their own warehouses and enable other marketplaces with inventory that in FBA would only be available to our customers.”
Plaintiffs bring this lawsuit despite Amazon’s extensive efforts to impede the government’s investigation and hide information about its internal operations. Amazon executives systematically and intentionally deleted internal communications using the “disappearing message” feature of the Signal messaging app. Amazon prejudicially destroyed more than two years’ worth of such communications—from June 2019 to at least early 2022—despite Plaintiffs’ instructing Amazon not to do so.
Some of the stats revealed in the updated complaint:
- As of the first quarter of 2021, there were over 560,000 active sellers on Amazon’s U.S. Marketplace.
- In 2020, sellers offered more than 80% of the unique items available for sale on Amazon.
- Nearly 98% of all purchases on Amazon are made using the “Add to Cart” and “Buy Now” buttons in the Buy Box. As a result, winning the Buy Box is essential to making sales on Amazon.
Seller Fulfilled Prime vs. Fulfillment By Amazon
The newly unredacted version of the complaint also includes an extensive section on Amazon’s alleged hand-wringing over its Seller Fulfilled Prime program, which lets sellers fulfill their own products while still getting the Prime badge, without paying fees to Amazon for its Fulfillment by Amazon program.
Seller Fulfilled Prime was recently relaunched by the company after previously being discontinued.
More from the newly unredacted complaint:
Though SFP was benefitting at least some shoppers and sellers, internally certain Amazon executives feared SFP was “[s]trategically risky” because it could “seriously imper[i]l FBA.” Amazon executives worried that because SFP “does not really have a moat,” it could “enable competitors to ship fast.” These executives were concerned that SFP was an independent fulfillment provider “enabler” that could help independent fulfillment providers “get to scale,” which could then benefit “other retailers.”
Amazon turned against SFP in early 2019, when it learned that independent fulfillment providers were advertising their ability to help sellers obtain Prime eligibility for products sold on Amazon and fulfilled through SFP. Amazon’s CEO of Worldwide Operations wrote that he was “losing [his] mind” after learning that UPS was advertising that its online retail fulfillment service could fulfill Prime-eligible orders. In that same email chain, two high-level Amazon executives agreed that Amazon should consider shutting down SFP in the United States.
A few months later, in a meeting titled “3PL impact mitigation,” referring to the industry term for independent fulfillment service providers, Amazon formally decided to stop new enrollment in SFP. Amazon knew closing SFP would harm its shoppers by reducing the number of Prime-eligible offers available to Prime subscribers and slow overall shipping speeds for products sold on Amazon. But Amazon decided to prioritize excluding rivals and foreclosing competition, even if it came at a cost to Amazon’s customers.
Some Amazon employees had suggested re-opening the program by creating an alternative “badge” for offers eligible for Prime through SFP. Those employees recommended “not to Sunset the SFP Program as both Customers and Sellers will lose the Prime benefits on115 [million] unique items that are offered today with faster speeds to our Prime customers.” Amazon’s then-CEO of Worldwide Consumer, Mr. Wilke, vetoed the idea. Amazon wanted to minimize any potential backlash from SFP sellers, so in 2019 Amazon let sellers already in SFP remain while blocking all new enrollment. Critically, Amazon communicated to those sellers who were already in SFP that it expected them to fulfill orders themselves, rather than using independent fulfillment providers. Most remaining SFP sellers have since left or been disqualified from the program.
Conditioning Prime eligibility on FBA usage—and thus preventing sellers from using independent fulfillment providers—is not necessary to ensure Prime subscribers receive quality shipping. Amazon’s internal analyses showed that sellers using independent fulfillment services met Amazon’s stringent SFP standards more often than sellers fulfilling orders themselves. For example, in the last quarter before Amazon suspended enrollment, SFP sellers using independent fulfillment providers satisfied Amazon’s delivery requirement 98.4% of the time (compared to 96% for all SFP sellers) and satisfied Amazon’s shipping requirement 99.8% of the time (compared to 96.8% for all SFP sellers). Had Amazon genuinely cared about improving shipping speeds, it would have encouraged SFP sellers to use independent fulfillment providers instead of shuttering SFP to deliberately impede those providers’ growth.
Statement on this issue from Amazon’s Tim Doyle:
“The FTC’s statements that Seller Fulfilled Prime was working well for customers in 2018 are highly misleading. The fact is that in 2018 sellers using Seller Fulfilled Prime were promising deliveries within two days less than 16% of the time—far worse than the performance of sellers using Fulfillment by Amazon and far below the high standards and expectations our customers have for Prime.
“New enrollment in the program was paused in 2019. We have learned a lot, and over the last several years we updated the program requirements. We’ve now reopened enrollment to an improved Seller Fulfilled Prime program that can meet our customers’ expectations. The misleading figures the FTC points to in the complaint falsely portray how we work with sellers to meet our customers’ high expectations.”
Read the newly unredacted complaint here.
