FTC and 22 states sue Amazon over advertising prices
The U.S. Federal Trade Commission (FTC), together with 22 states, has filed a lawsuit against Amazon, accusing the company of secretly inflating the cost of advertising for businesses on its platform. As TechCrunch reports, the FTC says this practice may have affected more than one million brands and sellers and generated tens of billions of dollars in additional revenue for Amazon.
The states of Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont, and Washington joined the lawsuit.
Claims regarding advertising auctions
The lawsuit concerns Sponsored Products, Sponsored Brands, and Display advertising formats, which appear alongside Amazon search results. According to the FTC, the company told more than 500,000 small and medium-sized businesses that it used a second-price auction: the winner pays one cent more than the next highest bid, rather than the full amount of its own bid.
The lawsuit states that Amazon allegedly quietly increased the prices advertisers paid in online auctions for more than seven years. The FTC also claims that since 2019, the company has added a hidden surcharge without notifying advertisers, which was referred to internally at Amazon as a soft reserve price.
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Positions of the parties
According to the FTC, one internal document mentioned an invented auction participant — a fictitious auction participant that could artificially raise the price above the level created by real competition. The regulator says that after changing the mechanism, Amazon charged Sponsored Products advertisers the full amount of their winning bid in approximately 80% of cases, effectively turning the declared second-price auction into a first-price auction.
The FTC believes Amazon concealed this approach because disclosure could have prompted advertisers to lower their bids and reduced the company’s advertising revenue. Last year, Amazon generated more than $68 billion in advertising revenue.
Amazon called the FTC’s lawsuit misguided and said the complaint mischaracterizes how advertisers operate. The company said its auctions evaluate billions of bids for different placements and formats, which may cause prices to vary, and that advertisers are properly informed about the pricing system.
