A new high-profile lawsuit could have a lasting effect on Amazon. The Federal Trade Commission (FTC) recently teamed up with 17 U.S. states to file a lawsuit against Amazon, alleging that the retail giant has reached a monopoly status.
The lawsuit claims that Amazon’s policies stop its competitors from reducing prices. It also claims that the company overcharges sellers, diminishes the overall quality of products available to online shoppers, obstructs fair competition, stifles innovation, and makes it nearly impossible for current or future competitors to thrive.
Amazon is no stranger to legal troubles; for instance, in 2021, the U.S. Consumer Product Safety Commission (CPSC) took legal action against Amazon for the sale of hazardous goods on its platform. The company was accused of failing to take action against independent sellers by recalling unsafe products, even when these items posed significant risks of injury or death.
In the latest lawsuit, the FTC has leveled accusations against Amazon’s founder, Jeff Bezos, suggesting that the company disseminated irrelevant ads to consumers using the platform. If these allegations hold true, this practice would have complicated shoppers’ ability to find the products they were seeking and likely steered them toward higher-priced items, thereby increasing Amazon’s revenue.
This updated complaint from the FTC sheds light on Bezos’ alleged involvement in these advertising strategies, emphasizing how they harmed the shopping experience for consumers while bolstering the company’s financial performance.
Shoppers were also apparently forced to pay more for sponsored items that dominated Amazon’s site. While the precise price difference remains unclear, an internal study conducted at Amazon in 2018, as reported by CNBC, indicated that sponsored products were twice as expensive as organically featured products.
Furthermore, the FTC’s redacted information reveals something called “Project Nessie”, an Amazon algorithm designed to covertly raise prices, both on its own platform and those of its competitors.
The FTC claimed in its statement: “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.
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.
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.”