For Washington Monthly, Stacy Mitchell explains how Amazon’s pricing algorithms — a novel form of monopoly power — leads to higher prices, as outlined in an FTC antitrust lawsuit scheduled to go to trial in 2027:
Central to Amazon’s monopoly power, the complaint alleges, are sophisticated AI-driven pricing systems that draw on torrents of real-time data and “can detect any price change virtually anywhere on the internet.” Amazon has used these algorithms not only to adjust its own prices in real time, but to monitor how competing retailers’ algorithms react, probe their strategies, and learn how to shape their behavior—including how to induce them to raise their prices.
The FTC singles out what it calls Amazon’s ‘anti-discounting’ algorithm. According to the commission, it was conceived by Jeff Wilke, Amazon’s former head of Worldwide Consumer, to avoid what he described internally as a “perfectly competitive market,” in which rivals compete on price and drive down profits. Instead, Wilke argued for Amazon to adopt a “game theory approach,” predicting that if it did, both the company’s and its competitors’ prices “will go up.”
Here’s how it allegedly worked: Amazon’s anti-discounting algorithm immediately matched competitors’ price changes to the penny, but never undercut them. When a rival offered a discount, Amazon’s algorithm matched it; when rivals raised prices, Amazon’s algorithm followed. This denied competing retailers a crucial tactic for luring customers from Amazon. If other retailers could never offer lower prices, Amazon’s roughly 200 million paying subscribers had little reason to shop elsewhere.
More insidiously, the lawsuit contends, this strategy rewired how rivals price their products. The pricing algorithms widely used by online retailers are designed to learn and adapt; what they learned from Amazon was that price cuts yielded only thinner margins, not higher sales. Competitors’ algorithms eventually gave up on discounting and instead concluded that raising prices was a more profitable response. If sales volume could not grow, at least margins could. In turn, Amazon matched competitors’ price hikes, and prices across markets rose without any direct coordination.
Read more about how Amazon’s algorithms raise prices everywhere here.
Stacy Mitchell“Amazon’s anti-discounting algorithm immediately matched competitors’ price changes to the penny, but never undercut them. When a rival offered a discount, Amazon’s algorithm matched it; when rivals raised prices, Amazon’s algorithm followed.”
ILSR's virtual event spotlights how pricing algorithms deployed by powerful corporations are inflating prices, undermining competition, and threatening independent businesses and communities.
ILSR's guide to hosting and supporting teacher wish lists without using Amazon.
Looking to protest The Washington Post's decision to pull their Kamala Harris endorsement and considering cancelling Amazon Prime? This cheat sheet makes it easy.
How Amazon uses its monopoly power to extract extreme and rapidly growing fees from businesses on their site that have little choice to reach customers.