Amazon Used Secret 'Project Nessie' Algorithm To Raise Prices (wsj.com) 49
Amazon used an algorithm code-named "Project Nessie" to test how much it could raise prices in a way that competitors would follow, according to redacted portions of the Federal Trade Commission's monopoly lawsuit against the company. From a report: The algorithm helped Amazon improve its profit on items across shopping categories, and because of the power the company has in e-commerce, led competitors to raise their prices and charge customers more, according to people familiar with the allegations in the complaint. In instances where competitors didn't raise their prices to Amazon's level, the algorithm -- which is no longer in use -- automatically returned the item to its normal price point.
The company also used Nessie on what employees saw as a promotional spiral, where Amazon would match a discounted price from a competitor, such as Target.com, and other competitors would follow, lowering their prices. When Target ended its sale, Amazon and the other competitors would remain locked at the low price because they were still matching each other, according to former employees who worked on the algorithm and pricing team. The algorithm helped Amazon recoup money and improve margins. The FTC's lawsuit redacted an estimate of how much it alleges the practice "extracted from American households," and it also says it helped the company generate a redacted amount of "excess profit." Amazon made more than $1 billion in revenue through use of the algorithm, according to a person familiar with the matter. Amazon stopped using the algorithm in 2019, some of the people said. It wasn't clear why the company stopped using it.
The company also used Nessie on what employees saw as a promotional spiral, where Amazon would match a discounted price from a competitor, such as Target.com, and other competitors would follow, lowering their prices. When Target ended its sale, Amazon and the other competitors would remain locked at the low price because they were still matching each other, according to former employees who worked on the algorithm and pricing team. The algorithm helped Amazon recoup money and improve margins. The FTC's lawsuit redacted an estimate of how much it alleges the practice "extracted from American households," and it also says it helped the company generate a redacted amount of "excess profit." Amazon made more than $1 billion in revenue through use of the algorithm, according to a person familiar with the matter. Amazon stopped using the algorithm in 2019, some of the people said. It wasn't clear why the company stopped using it.
I'm confused. (Score:4, Insightful)
What businesses don't do that? If your competition lowers their prices for a week, and you follow, who says you can't raise your prices to their previous level, or any level? If you've got a computer, you can raise them until your demand starts to fall, at which point you know you've priced yourself out of the market.
Re:I'm confused. (Score:4, Insightful)
Exactly, and outside monopolistic abuse, isn't this just glorious capitalism? I guess the complaint is that cartels aren't supposed to be automatic?
It's a computerized cartel (Score:5, Interesting)
Not that Amazon might get away with it. Uber ran and continues to run an illegal and largely unlicensed taxi cab service using employees illegally classified as contractors by claiming "we're a technology company". Outside of prostitution (which has an explicit law against it) you seem to be able to get away with almost any illegal activity by claiming to be a "technology company" and using software to put a little space between you and the illegal activity in question.
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On the other hand, if Amazon (or their software, same thing) is looking at public information about competitors' existing prices and using it to inform their business decisions, that's entirely normal and not something we would want the government to have the power to restrict.
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Second, this is not monopolistic abuse but rather collusion. Amazon and competitors are raising prices in concert, bypassing the free market. The only difference between this and traditional collusion is that the conspirators don't talk to one another directly, instead doing it through this software and rather convoluted m
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A third way of looking at this is that it's just normal capitalism.
Businesses adjust prices all the time, watch how competitors respond, and then adjust.
Legally, collusion requires explicit agreement, not just a reaction to a competitor's actions.
The FTC can argue this is an abuse of monopoly, but unless they can point to an existing regulation or consent decree, that is a difficult argument to make.
Companies do stuff to make money. Nobody should be shocked.
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I think you could make an argument on the grounds that if a company that wasn't the size and scope of Amazon tried to replicate this would they be able to, intentional or not? I don't how that holds up entirely but there are maybe 3 companies (Amazon, Target and Walmart) that could maybe exert that much influence over a market? That to me could be enough to investigate this if there was no other reason to raise the price other than just maximizing profit return.
Not alleging anything illegal happened here bu
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It benefits the few at the expense of the many.
Please provide an example of an actual working economic system that does better.
Please don't be an idiot and say "Denmark," which is a capitalist country.
It flagrantly supports greed.
Greed doesn't go away when you stop supporting it. Capitalism is compatible with human nature. Alternative systems are not.
It treats people as commodities.
Commodities are valued. Would you prefer that people were treated as, say, a waste product?
The inherent need for growth is unsustainable.
Capitalism has no "need". But it does provide growth. If you want to promote your alternative by arguing that stagnation and decline are prefera
Re: I'm confused. (Score:1)
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Your first point is that feudalism sucked, so maybe capitalism does too. That doesn't make much sense.
Your second point is that taxes were higher in the 1950s, which is false. Taxes are higher now [stlouisfed.org].
Your third point is that universities, which are mostly either government-run or non-profit institutions, are too expensive. Yes, costs have soared, mostly because of government mandates that have little to do with "capitalism".
Re: I'm confused. (Score:1)
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Then why do the *poor* people in the capitalist countries consistently have a higher standard of living than the median in the communist utopias?
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A lot of people make the mistake of thinking that anti-trust is about catching villains, and that companies which are guilty of this are criminals. Not at all. This is the natural consequence of a free market system, and a necessary part of keeping it working. The free market is supposed to increase efficiency and reduce profits. The fact that Amazon has the ability to get around this does not make Amazon a villa
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Not sure whether to classify that as ironic or oxymoronic.
> this is not monopolistic abuse but rather collusion.
Reacting to a competitor changing their price is now collusion?
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I'm not saying Amazon doesn't abuse their dominant position in the online retail market. They probably do, in a variety of ways. But using public information (about e.g. competitors' existing prices) to decide what price changes to make, is not something we would want the government have the power to restrict.
Now, if they were _colluding_ with competitors to set prices, th
Re:I'm confused. (Score:5, Insightful)
Apparently nobody patented "price discovery" ON A COMPUTER so Amazon was free to do so?
Commies think prices should be set by the Politburo so they're big mad.
Or maybe it's so they can avoid raising actual monopolistic tying practices ... WaPo isn't neutral here.
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As a capitalist I don't not think the government has any place in regulating commerce.
The logical conclusion of your ideas is oligarchy or corporatocracy, which are not a democratic forms of government.
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Re:I'm confused. (Score:5, Insightful)
The limit is when your algorithm and my algorithm are both working to test the maximum price that a.) competitors will charge b.) consumers will pay, and then end up settling on what is, in effect, an agreed-upon sharing and gaming of the market.
It's about monopolism (Score:3)
Here's the thing. Normal bussiness activity isn't considered normal when a party is a market maker. This is recognized in law. Things you can do when your activities are insufficient to really move the market ae not allowed when your actions literally change the market. That's the issue. And that's the part you are missing, causing your confusion. The actions amazon is taking aren't bad ones in and of themselves. They are just bad ones when you add in the fact that amazon controls so much of the mark
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If that applied in this case, then explain the part about lowering prices to match Target's prices.
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Okay. This will take a little economic theory to understand so I hope you appreciate I'm taking your question seriously and not passing it off as snark.
You probably have heard of Nash equilibria? These are points on a multi-player economic manifold in which no party can make a move to improve their outcome. The surprising aspect of these is that they are often not the optimal or pessimal points of operation. The prisoners dilemma is a classic illustration of rational behaviors driving them to the pessim
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when a party is a market maker. This is recognized in securities law.
added my own little qualifier there for ya bud
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this part of the a suit from the ftc for monopolistic behavior, after a cursory inspection of actual data has shown a couple weeks later that even if such behavior had existed it didn't work and amazon's competition actually grew during the period. so ... tough call.
not saying amazon isn't evil, by any stretch, but this suit looks more politically motivated than anything, to show that the ftc with its flamboyant anti-trust celebrity head is strongly going after the biggies, which is likely just bullshit. th
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From the article: "The company also used Nessie on what employees saw as a promotional spiral, where Amazon would match a discounted price from a competitor, such as Target.com, and other competitors would follow, lowering their prices. "
Amazon has two fulfillment methods, Fulfilled By Amazon (FBA) and Seller fulfilled. With Seller Fulfilled items, Amazon punishes sellers by shunting traffic away fr
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But yeah, if you're acting on public information about competitor's existing prices, and changing your prices in response, there's nothing illegal about that. Pretty much every gas station in North America does this every single day.
Nessie? (Score:2)
The plesiosaurus?
Amazon, WH Partner on Responsible Use of Tech (Score:2)
Our commitment to the responsible use of AI [aboutamazon.com]: "At Amazon, we are committed to continued collaboration with the White House, policymakers, the technology industry, researchers, and the AI community to advance the responsible and secure use of AI."
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Wherein "Responsible and secure" in this instance means "make jeff richer"
Competition (Score:3)
I thought this is what capitalism and the free market was all about? The invisible hand of the free market would rule out those who can't compete and the best will rise to the top.
Re:Competition (Score:4, Interesting)
For that you need a free market - which requires that no single entity has any notable influence on the market prices.
About 5% seems to be the tipping point - by the time someone corners 10% of a market you're generally already starting to see clear evidence of market manipulation.
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glad to see you turning that apparent economic wisdom into some cold, hard cash and not just giving it the bigun in slashdot comment section
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Which only means a free market can not exist. You either have a regulated market to keep it so no single entity has any notable influence on prices, or a free market where the outcome is one winner and N losers.
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Well you started out right - a free market can't realistically exist.
Either you have a well-regulated emulation of a free market, or a highly inefficient captured market with only a few big winners. You might have more than one, but they'll almost certainly be colluding to prevent that from hurting their profit margins.
A lawyer got involved probably (Score:5, Insightful)
Amazon stopped using the algorithm in 2019 [...]. It wasn't clear why the company stopped using it.
Because a company lawyer pointed out that it looks furiously like monopolistic practices and it would look bad if they got investigated?
Re:A lawyer got involved probably (Score:4, Informative)
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Interesting... I can tell you speak from experience here.
Just normal retail? (Score:2)
Nobody hates making money, competitors charging less is what leads you to lower prices.
Hello Antitrust Division (Score:1)
This is just the kind of price fixing that antitrust law was supposed to prevent. Did DOJ's antitrust division get adequate funding?
camelcamelcamel (Score:2)
Misleading (Score:1)
so what? (Score:2)
All this says is (a) compete on price, and (b) market exhibits hysteresis.
Elastic bands (Score:1)
Price elasticity is generally good, especially when based on supply / demand. There is a danger to price elasticity when basing it on competition: see something like Walmart taking a short term loss on a good to put a competitor out of business... though that mostly works on the small scale for things like groceries.
Warehousing is an interesting factor too. Things can even out if it costs more to store things than it does to sell them... you avoid hording that way. Obviously Amazon owning their own warehous