What's the price of that gizmo? It depends.
In the vast and intricate world of e-commerce, price manipulation is the name of the game. Amazon has stood out for its capacity for constant innovation and price maximization is no exception.
Given this, the U.S. Federal Trade Commission (FTC) has revealed the existence of a secret algorithm called "Project Nessie" that it says Amazon has used to increase its prices and maximize its profit margins.
Manipulation in Amazon prices?
It is widely known that Amazon, as a leading global e-commerce platform, sells not only products from competing brands, but also its own brands and products. This competitive dynamic drives all brands and stores present on the platform to constantly adjust their prices.
The goal is to find that magical balance where prices are attractive to customers, while generating a satisfactory profit margin. Here, in its purest form, we find a manifestation of capitalism.
Amazon's internal algorithm, Project Nessie, played a key role in this price dance. When a brand reduced its prices or launched offers, Amazon used to match those prices, which exerted a dominant influence on other brands that were forced to sell at low prices, even below their costs.
However, Project Nessie was not limited to lowering prices; it also acted in the opposite direction. Amazon increased the prices of some of its products to see if other brands followed.
Amazon benefits at the expense of consumers
The FTC has filed an antitrust lawsuit that sheds light on Amazon's practices with Project Nessie. According to the FTC, Amazon would have obtained about an additional billion dollars in profits through these algorithmic maneuvers.
Interestingly, the only ones harmed in this price game were consumers, who experienced unexplained fluctuations in the prices of various products in different categories. Amazon reaped profits both from the sale of its own products and from the commissions it charged to other brands and stores for using its platform and fulfilment services.
Instead of freely fixing their prices, these actors were trapped in a roller coaster of price rises and falls, with the threat of being relegated to the dark corners of the platform if they did not adhere to this dynamic.
Amazon argues that Project Nessie is no longer in operation, pointing to its lack of effectiveness as a justification for its discontinuation.
Consumer confusion
In addition to price manipulation, there is another crucial problem: the difficulty of end customers in distinguishing between the products in Amazon's catalog and those that are promoted as ads. This lack of clarity degrades the shopping experience of consumers and casts shadows on the transparency of the platform.
Complex algorithm to benefit giants
Project Nessie sheds light on the complexity of the e-commerce ecosystem, where algorithms can be used both to benefit giants and to harm consumers and competition. The FTC has raised critical questions about the ethics and legality of these practices, which could have a significant impact on the future regulation of the industry.