FTC, states sue Amazon, alleging company misled advertisers
The Federal Trade Commission has filed suit against Amazon, alleging that the company secretly inflated prices in its online search advertising auctions, in a scheme that the FTC said extracted tens of billions of dollars from the online giant's advertising customers.
The attorney generals of 22 states joined the FTC in filing the suit. The complaint is focused on Amazon’s sponsored products ads, brand ads and display ads that run alongside search results on webstore. The FTC alleges that Amazon has imposed undisclosed surcharges on its advertising customers, which include over 500,000 small- and medium-sized businesses that participated in auctions for advertising placements on Amazon.com and its mobile app.
“Amazon has millions of advertising customers who were misled into paying significantly higher prices,” FTC Chairman Andrew Ferguson said in a statement. “These higher costs were largely passed on to American consumers.”
The lawsuit centers on so-called second-price auctions, the industry standard for digital ad deals, reported CBS News. Amazon informed businesses that they would pay only "one cent more" than the second-place bidder for an advertising keyword, but the lawsuit alleges that the retailer charged the winners their own price about 80% of the time, the report said.
Amazon Response
In a blog post on its website, Amazon responded to the complaint, calling it “misguided” and saying it “fundamentally misunderstands how advertisers operate.”
"Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics, “ the company said. “Even accepting the FTC's flawed premise that advertisers do not adjust bids, we estimate they saved over $8 billion from 2021 to 2025 as a result of Amazon prioritizing ad relevancy over selecting ads on bid price alone."
Amazon noted that the case centers on generalized second price auction dynamics, which the complaint itself concedes have been “the industry standard for decades.” In no scenario does an advertiser pay more than their bid.
“After reviewing approximately 1.5 million pages spanning six years, the FTC leans on a handful of simplified communications to allege a companywide effort to deceive.,” Amazon stated. “That is patently false.”