FTC Sues Amazon for Secretly Overcharging on Ads
▼ Summary
– The FTC and 22 state attorneys general are suing Amazon for allegedly using a secret ad surcharge to manipulate auction prices.
– The complaint alleges that Amazon replaced actual second-highest bids with higher proxy prices to maximize its own profits since 2019.
– Regulators claim this practice illegally extracted over $20 billion from advertisers and resulted in higher prices passed on to consumers.
– Amazon disputes the lawsuit, calling it misguided and citing a 50% drop in average winning bid prices between 2019 and 2024.
– This legal action follows an earlier settlement where Amazon paid $2.5 billion regarding Prime subscription practices.
The Federal Trade Commission, backed by 22 state attorneys general, has filed a lawsuit against Amazon alleging the e-commerce giant secretly imposed an ad surcharge that inflated costs for advertisers. The complaint asserts that these artificially raised advertising rates were largely passed down to American consumers. This legal action marks a significant escalation in regulatory scrutiny of the tech company, arriving less than a year after Amazon settled a previous FTC case regarding its Prime subscription practices with a $2.5 billion payment.
Central to the FTC’s argument is the allegation that Amazon manipulated its “second price” auctions starting in 2019. In standard auction theory, the winner pays just one cent more than the second-highest bid. However, the FTC claims Amazon’s advertising division bypassed this mechanism to maximize revenue. Instead of accepting the market-determined second price, Amazon allegedly inserted a higher, calculated figure designed to increase profits while reducing the cost efficiency for advertisers.
Andrew Ferguson, the FTC chairman, highlighted the severity of these claims in a blog post accompanying the lawsuit. He stated that the higher advertising prices “were largely passed on to American consumers.” The complaint details how Amazon’s internal leadership acknowledged deviating from standard auction rules. Specifically, the text notes that Amazon’s Senior Vice President in charge of Amazon Ads explained internally that “the second price isn’t set by an actual bidder, but rather by” Amazon in the form of a “proxy 2nd price that we calculate.”
According to the filing, this practice likely resulted in the illegal extraction of over $20 billion from unwitting advertising customers. Amazon has firmly rejected these accusations. In a counter-blog post, the company described the lawsuit as “misguided” and pointed to data showing that from 2019 to 2024, the average winning bid for Sponsored Products search ads actually fell by 50%. Furthermore, Amazon disputed the core assertion that elevated ad costs were transferred to shoppers, maintaining that the FTC’s characterization of events is incorrect.
(Source: The Verge)
