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> The algorithm helped Amazon improve its profits on items across shopping categories, and because of the power the company has in e-commerce, led competitors t

> The algorithm helped Amazon improve its profits 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...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... Soooooo....it used the algorithm to raise prices, but also lower them? Anyone want to try their hand at an actual headline?

codetrotter 3y ago
> Anyone want to try their hand at an actual headline? A better headline would be: Amazon Used Secret ‘Project Nessie’ Algorithm to Steer Prices Using the word “steer” instead of the word “raise”.
gorlilla 3y ago
Amazon's price-matching algorithm does nefarious things. I'd argue that the 'lower prices' just let amazon disperse the cost of markdowns across all of the vendors. Meaning Amazon still benefits from the lower pricing because they get possibly extra sales but only absorb the cost on 'their' products which were still matched to their 'competition' who were stuck matching Amazon.
- paulddraper 3y ago
  > price-matching algorithm Half the stores I walk into have price matching.
curiousllama 3y ago
I read that differently. Ie "project Nessie raised prices. One place where this was especially impactful was when a competitor temporarily lowered prices forcing Amazon to match, Nessie got them back up quickly"
- taeric 3y ago
  And amusingly, I read it as "assume 3 parties, Amazon, Target, Y. Target has a sale, so Amazon price matches sale. Y was price matching Amazon. Target ends sale, but Amazon and Y have stuck each other on the lower price." That is, it makes it sound like Nessie was intended to bust some broken price matching logic that would allow other competitors to stick Amazon at lower prices due to interactions with other parties.
jawilson2 3y ago
If this were an HFT algo, there would absolutely be an investigation by the SEC. You cannot place orders with the intent to artificially manipulate the price. This is obviously not a regulated exchange, but the end result is similar, so I understand why it is an issue.
- lannisterstark 3y ago
  This isn't HFT, and Amazon isn't placing any orders. Going "I'm gonna lower my prices so competitors have to do it too to remain competitive" is not illegal iirc, and I don't think it should it be. This part in specific only benefits consumers.
  - munk-a 3y ago
    Loss leader pricing when used to force other businesses to close is quite illegal in the US[1] - when used for other reasons the legality varies on a state by state basis in the US... it is illegal in quite a few places. I'm not particularly familiar with international laws here. 1. https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/single-firm-conduct/predatory-or-below-cost-pricing https://www.ftc.gov/advice-guidance/competition-guidance/gui...
    - nofunsir 3y ago
      There was a pretty big fight over this not too long ago.
    - sokoloff 3y ago
      Is there evidence that Nessie was used to sell items below cost?
      - paulddraper 3y ago
        Given Amazon's retail profit margins....the answers must be yes, right?
deleted 3y ago
[deleted]
unethical_ban 3y ago
"Soooooo....it used the algorithm to manipulate the market price of items by way of their dominance as an e-commerce storefront"
JohnFen 3y ago
> Anyone want to try their hand at an actual headline? "Amazon Used Secret ‘Project Nessie’ Algorithm To Attempt Market Price Manipulation"
vb-8448 3y ago
> Soooooo....it used the algorithm to raise prices, but also lower them? Lowering prices in the short/medium term to throw out of the market the competition is a way of rising prices in the long term.
- SideQuark 3y ago
  By that reasoning no one could lower prices, which is ludicrous. How about showing the lowering was followed by the harm, instead of dreaming of a world where the prices are already raised?
  - vb-8448 3y ago
    You miss the point: lower the prices is good, lowering to kill competition is bad for users and customers. Diapers.com is just an example.
    - paulddraper 3y ago
      What if lowering prices has both consequences?
      - vb-8448 3y ago
        In the short term I agree, but in the long term, no way the consumers will benefit from the absence of competition.
        SideQuark 3y ago
        Amazon 2022 revenue ~343B, of which ~100B is AWS. Walmart revenue ~600B. And that's just one Amazon competitor. Looking at the top 10, Amazon has less than 20% of US retail sales. And there's a long list of retailers past that.... And once you look global, there's plenty more 100B+ revenue retailers, many of which also sell in the US. I hardly think there is even close to an "absence of competition." Heck, Amazon is not even the biggest US retailer by a large margin. Each of these posts is full of fear and implications the evidence and statistics show to be unfounded. [1] https://nrf.com/research-insights/top-retailers/top-100-retailers/top-100-retailers-2023-list https://nrf.com/research-insights/top-retailers/top-100-reta...
vngzs 3y ago
Cory Doctorow disagrees (1) that the consumer welfare theory of monopolies is valid and (2) that monopolies which dominate industries are economically desirable [0]. I found it interesting to realize that most modern antitrust theory - that consumer harm is the only reasonable basis for government intervention in monopolies - appears to lack historical basis in the law. For instance, the consumer welfare standard severely downplays the importance of free and fair competition among businesses as a means for class advancement. > This is the “consumer welfare” standard, a theory as economically bankrupt as it is historically unsupportable. Let’s be clear here: The plain language of America’s antitrust laws make it very clear that Congress wanted to block monopolies because it worried about the concentration of corporate power, not just the abuse of that power. This is inarguable: Think of John Sherman stalking the floor of the Senate, railing against autocrats of trade, declaiming that “we should not endure a King over the production, transportation, and sale of the necessaries of life.” These are not the statements of a man who liked most monopolies and merely sought to restrain the occasional monopolist who lost sight of his duty to make life better for the public. [0]: https://archive.ph/aTv47 https://archive.ph/aTv47
- panarky 3y ago
  The internet provider for my home is a true monopoly. I have no other choice. I can't click around in my browser, or futz with the cables in the walls and choose a competitive internet provider. I live in an area with moderate population density, so there could be more competition, but the local municipality negotiated exclusive rights for one provider. My provider knows it, they probably paid handsomely for the exclusive rights, and that's why they charge $95 a month for unreliable and slow service. When my uncle had a heart attack, he wasn't in a position to shop ambulances, emergency departments, surgeons, cardiologists or anesthesiologists. As with internet providers, emergency healthcare is not a competitive market, and that's reflected in extortionate pricing. It seems like reducing consumer harm should be the primary objective of regulators.
  - eropple 3y ago
    > It seems like reducing consumer harm should be the primary objective of regulators. You're not wrong, but the definition of "consumer harm" used in practice hinges on short-termism and is price-centered right now. "This won't raise prices...for now, at least" is, by itself, an alarmingly strong argument in this arena, irrespective of market health or sustainability of competition. The Biden administration has made some steps to counter that, we'll see if it's really a thing.
yonran 3y ago
This is straight out of FTC Chairwoman Lina Khan’s original article Amazon’s Antitrust Paradox https://www.yalelawjournal.org/note/amazons-antitrust-paradox https://www.yalelawjournal.org/note/amazons-antitrust-parado.... Amazon is willing to match any competitor’s price in order to build market share while not triggering predatory pricing antitrust review (which did not consider network effects). But the price is low only as long as the competitor is there. When small competitors finally give up (since they cannot offer the same free shipping variety as Amazon) and drop out of the market, Amazon will raise the price in the long run and capture monopolistic profits. Repeat for each new market that they compete in.
- obblekk 3y ago
  This is important. Not just that amzn algorithmically finds the optimal market clearing price. They may be finding an optimal dumping price to reduce competition and then an optimal profit maximizing price to capture monopoly profits. If true, this would be a clear violation of anti trust law, despite being algorithmically implemented at scale. Unclear if intentionality matters for the law - even if the algorithms learned this behavior implicitly as the solution to a legal objective, it could be illegal.
- aga98mtl 3y ago
  This theorical talk of monopolistic profits does fit the market reality. There are at least a dozen retailers for every type of product Amazon sells. Can you provide an example of a product where Amazon enjoys a monopoly (or even something close to a monopoly)?
  - azemetre 3y ago
    Well what is your definition of monopoly? Amazon, like other big tech, like to use their highly profitable BUs (Amazon AWS, Google ads, Meta ads) to prop up other failing BUs. This is extremely anti competitive. We should not be shepherding a new tech baron era, but enforce competition in markets. Competition should be the highest thing we value in an economy. This experiment of consolidations, mergers, and acquisitions since the 80s has been disastrous. We're reaching the point where we should break up nearly every multinational conglomerate, they've abused too much and suffered too little.
phkahler 3y ago
>> 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. This is a form of automated collusion. I'll raise my price and if my competitors don't follow suit I will lower it again. It only works well for them if the competitors are watching prices too and looking for an opportunity to raise theirs. You know it's anti-consumer because of the conditional reversion after watching competitors prices not following. I have a feeling there is currently a LOT of this going on across all industries in the US. We've seen it rent pricing software, now Amazon, and I think fast food and restaurants are dojng something similar. Food has gotten obscenely expensive expensive outside a grocery store.
- beambot 3y ago
  "Price matching" is standard practice in virtually every major retailer...
  - losteric 3y ago
    Price matching refers to lowering prices. That's legal, up to the point of predatory pricing. Raising prices then checking if so-called "competitors" follow is the illegal part - that's automated collusion, definitively illegal. There is grey area around intent/motive, but the OP article is clearly on the bad side. (Also, "standard practice" doesn't mean legal or moral)
    - granzymes 3y ago
      >Raising prices then checking if so-called "competitors" follow is the illegal part - that's automated collusion, definitively illegal. This is completely false. Collusion, legally, requires an agreement between competitors. Tacit collusion is *not* illegal, see Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp. (1993). Amazon can raise and lower their prices all day, algorithmically or not, as long as they aren't calling up their competitors and telling them to raise their prices too.
- scarface_74 3y ago
toasted-subs 3y ago
"Amazon used it's influence to control the market"
shadowgovt 3y ago
Normally I'm the first one out the gate to remind people that the legal standard in the US for monopoly isn't size or impact on competition but consumer harm... Amazon could strangle all alternative product channels, but if they do so by legitimately finding a breakthrough that delivers product to people with 10x efficiency, that's (a) not actionable in the US and (b) great news, system works as intended, A++ would let winner win again. ... but in this case? Amazon has massive access to otherwise-secret price knowledge that they require sellers provide to participate in the marketplace. More than people realize and more than is shown in the UI (I did some work for a company that specialized in providing that data). If they used it to feed this algorithm, there's a real solid case that they used their unique market position to make things more expensive for no consumer benefit, and the antitrust case writes itself.
hot_gril 3y ago
"Led competitors to raise their prices and charge customers more" is serious, yet it's glossed over. If Amazon is truly telling competitors to raise prices, that's collusion in of itself. The rest of this is just "Amazon uses pricing algorithm."
ada1981 3y ago
Amazon Uses Computers to Aid In Price Discovery; FTC In Uproar.

codetrotter 3y ago

> Anyone want to try their hand at an actual headline? A better headline would be: Amazon Used Secret ‘Project Nessie’ Algorithm to Steer Prices Using the word “steer” instead of the word “raise”.

gorlilla 3y ago

Amazon's price-matching algorithm does nefarious things. I'd argue that the 'lower prices' just let amazon disperse the cost of markdowns across all of the vendors. Meaning Amazon still benefits from the lower pricing because they get possibly extra sales but only absorb the cost on 'their' products which were still matched to their 'competition' who were stuck matching Amazon.

paulddraper 3y ago
> price-matching algorithm Half the stores I walk into have price matching.

curiousllama 3y ago

I read that differently. Ie "project Nessie raised prices. One place where this was especially impactful was when a competitor temporarily lowered prices forcing Amazon to match, Nessie got them back up quickly"

taeric 3y ago
And amusingly, I read it as "assume 3 parties, Amazon, Target, Y. Target has a sale, so Amazon price matches sale. Y was price matching Amazon. Target ends sale, but Amazon and Y have stuck each other on the lower price." That is, it makes it sound like Nessie was intended to bust some broken price matching logic that would allow other competitors to stick Amazon at lower prices due to interactions with other parties.

jawilson2 3y ago

If this were an HFT algo, there would absolutely be an investigation by the SEC. You cannot place orders with the intent to artificially manipulate the price. This is obviously not a regulated exchange, but the end result is similar, so I understand why it is an issue.

lannisterstark 3y ago
This isn't HFT, and Amazon isn't placing any orders. Going "I'm gonna lower my prices so competitors have to do it too to remain competitive" is not illegal iirc, and I don't think it should it be. This part in specific only benefits consumers.
- munk-a 3y ago
  Loss leader pricing when used to force other businesses to close is quite illegal in the US[1] - when used for other reasons the legality varies on a state by state basis in the US... it is illegal in quite a few places. I'm not particularly familiar with international laws here. 1. https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/single-firm-conduct/predatory-or-below-cost-pricing https://www.ftc.gov/advice-guidance/competition-guidance/gui...
  - nofunsir 3y ago
    There was a pretty big fight over this not too long ago.
  - sokoloff 3y ago
    Is there evidence that Nessie was used to sell items below cost?
    - paulddraper 3y ago
      Given Amazon's retail profit margins....the answers must be yes, right?

deleted 3y ago

[deleted]

unethical_ban 3y ago

"Soooooo....it used the algorithm to manipulate the market price of items by way of their dominance as an e-commerce storefront"

JohnFen 3y ago

> Anyone want to try their hand at an actual headline? "Amazon Used Secret ‘Project Nessie’ Algorithm To Attempt Market Price Manipulation"

vb-8448 3y ago

> Soooooo....it used the algorithm to raise prices, but also lower them? Lowering prices in the short/medium term to throw out of the market the competition is a way of rising prices in the long term.

SideQuark 3y ago
By that reasoning no one could lower prices, which is ludicrous. How about showing the lowering was followed by the harm, instead of dreaming of a world where the prices are already raised?
- vb-8448 3y ago
  You miss the point: lower the prices is good, lowering to kill competition is bad for users and customers. Diapers.com is just an example.
  - paulddraper 3y ago
    What if lowering prices has both consequences?
    - vb-8448 3y ago
      In the short term I agree, but in the long term, no way the consumers will benefit from the absence of competition.
      - SideQuark 3y ago
        Amazon 2022 revenue ~343B, of which ~100B is AWS. Walmart revenue ~600B. And that's just one Amazon competitor. Looking at the top 10, Amazon has less than 20% of US retail sales. And there's a long list of retailers past that.... And once you look global, there's plenty more 100B+ revenue retailers, many of which also sell in the US. I hardly think there is even close to an "absence of competition." Heck, Amazon is not even the biggest US retailer by a large margin. Each of these posts is full of fear and implications the evidence and statistics show to be unfounded. [1] https://nrf.com/research-insights/top-retailers/top-100-retailers/top-100-retailers-2023-list https://nrf.com/research-insights/top-retailers/top-100-reta...

vngzs 3y ago

Cory Doctorow disagrees (1) that the consumer welfare theory of monopolies is valid and (2) that monopolies which dominate industries are economically desirable [0]. I found it interesting to realize that most modern antitrust theory - that consumer harm is the only reasonable basis for government intervention in monopolies - appears to lack historical basis in the law. For instance, the consumer welfare standard severely downplays the importance of free and fair competition among businesses as a means for class advancement. > This is the “consumer welfare” standard, a theory as economically bankrupt as it is historically unsupportable. Let’s be clear here: The plain language of America’s antitrust laws make it very clear that Congress wanted to block monopolies because it worried about the concentration of corporate power, not just the abuse of that power. This is inarguable: Think of John Sherman stalking the floor of the Senate, railing against autocrats of trade, declaiming that “we should not endure a King over the production, transportation, and sale of the necessaries of life.” These are not the statements of a man who liked most monopolies and merely sought to restrain the occasional monopolist who lost sight of his duty to make life better for the public. [0]: https://archive.ph/aTv47 https://archive.ph/aTv47

panarky 3y ago
The internet provider for my home is a true monopoly. I have no other choice. I can't click around in my browser, or futz with the cables in the walls and choose a competitive internet provider. I live in an area with moderate population density, so there could be more competition, but the local municipality negotiated exclusive rights for one provider. My provider knows it, they probably paid handsomely for the exclusive rights, and that's why they charge $95 a month for unreliable and slow service. When my uncle had a heart attack, he wasn't in a position to shop ambulances, emergency departments, surgeons, cardiologists or anesthesiologists. As with internet providers, emergency healthcare is not a competitive market, and that's reflected in extortionate pricing. It seems like reducing consumer harm should be the primary objective of regulators.
- eropple 3y ago
  > It seems like reducing consumer harm should be the primary objective of regulators. You're not wrong, but the definition of "consumer harm" used in practice hinges on short-termism and is price-centered right now. "This won't raise prices...for now, at least" is, by itself, an alarmingly strong argument in this arena, irrespective of market health or sustainability of competition. The Biden administration has made some steps to counter that, we'll see if it's really a thing.

yonran 3y ago

This is straight out of FTC Chairwoman Lina Khan’s original article Amazon’s Antitrust Paradox https://www.yalelawjournal.org/note/amazons-antitrust-paradox https://www.yalelawjournal.org/note/amazons-antitrust-parado.... Amazon is willing to match any competitor’s price in order to build market share while not triggering predatory pricing antitrust review (which did not consider network effects). But the price is low only as long as the competitor is there. When small competitors finally give up (since they cannot offer the same free shipping variety as Amazon) and drop out of the market, Amazon will raise the price in the long run and capture monopolistic profits. Repeat for each new market that they compete in.

obblekk 3y ago
This is important. Not just that amzn algorithmically finds the optimal market clearing price. They may be finding an optimal dumping price to reduce competition and then an optimal profit maximizing price to capture monopoly profits. If true, this would be a clear violation of anti trust law, despite being algorithmically implemented at scale. Unclear if intentionality matters for the law - even if the algorithms learned this behavior implicitly as the solution to a legal objective, it could be illegal.
aga98mtl 3y ago
This theorical talk of monopolistic profits does fit the market reality. There are at least a dozen retailers for every type of product Amazon sells. Can you provide an example of a product where Amazon enjoys a monopoly (or even something close to a monopoly)?
- azemetre 3y ago
  Well what is your definition of monopoly? Amazon, like other big tech, like to use their highly profitable BUs (Amazon AWS, Google ads, Meta ads) to prop up other failing BUs. This is extremely anti competitive. We should not be shepherding a new tech baron era, but enforce competition in markets. Competition should be the highest thing we value in an economy. This experiment of consolidations, mergers, and acquisitions since the 80s has been disastrous. We're reaching the point where we should break up nearly every multinational conglomerate, they've abused too much and suffered too little.

phkahler 3y ago

>> 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. This is a form of automated collusion. I'll raise my price and if my competitors don't follow suit I will lower it again. It only works well for them if the competitors are watching prices too and looking for an opportunity to raise theirs. You know it's anti-consumer because of the conditional reversion after watching competitors prices not following. I have a feeling there is currently a LOT of this going on across all industries in the US. We've seen it rent pricing software, now Amazon, and I think fast food and restaurants are dojng something similar. Food has gotten obscenely expensive expensive outside a grocery store.

beambot 3y ago
"Price matching" is standard practice in virtually every major retailer...
- losteric 3y ago
  Price matching refers to lowering prices. That's legal, up to the point of predatory pricing. Raising prices then checking if so-called "competitors" follow is the illegal part - that's automated collusion, definitively illegal. There is grey area around intent/motive, but the OP article is clearly on the bad side. (Also, "standard practice" doesn't mean legal or moral)
  - granzymes 3y ago
    >Raising prices then checking if so-called "competitors" follow is the illegal part - that's automated collusion, definitively illegal. This is completely false. Collusion, legally, requires an agreement between competitors. Tacit collusion is *not* illegal, see Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp. (1993). Amazon can raise and lower their prices all day, algorithmically or not, as long as they aren't calling up their competitors and telling them to raise their prices too.
scarface_74 3y ago

toasted-subs 3y ago

"Amazon used it's influence to control the market"

shadowgovt 3y ago

Normally I'm the first one out the gate to remind people that the legal standard in the US for monopoly isn't size or impact on competition but consumer harm... Amazon could strangle all alternative product channels, but if they do so by legitimately finding a breakthrough that delivers product to people with 10x efficiency, that's (a) not actionable in the US and (b) great news, system works as intended, A++ would let winner win again. ... but in this case? Amazon has massive access to otherwise-secret price knowledge that they require sellers provide to participate in the marketplace. More than people realize and more than is shown in the UI (I did some work for a company that specialized in providing that data). If they used it to feed this algorithm, there's a real solid case that they used their unique market position to make things more expensive for no consumer benefit, and the antitrust case writes itself.

hot_gril 3y ago

"Led competitors to raise their prices and charge customers more" is serious, yet it's glossed over. If Amazon is truly telling competitors to raise prices, that's collusion in of itself. The rest of this is just "Amazon uses pricing algorithm."

ada1981 3y ago

Amazon Uses Computers to Aid In Price Discovery; FTC In Uproar.