Amazon secretly inflated prices in its auction sales of digital advertising on its platform, the Federal Trade Commission, or FTC, and 22 states alleged in a lawsuit filed Monday. The lawsuit charges that, for more than seven years, Amazon has covertly increased the prices that more than one million brands and sellers were required to pay to advertise on its platform.
As a result, the lawsuit alleges that, under Amazon’s scheme, it obtained more than $20 billion in undisclosed surcharges from its unsuspecting advertising customers.
“When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering,” Andrew N. Ferguson, FTC, chair said in a statement. “Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers.”
In the lawsuit, the FTC and the attorneys general ask the court to end Amazon’s deceptive digital advertising practices and for remedies, including civil penalties and restitution.
In addition to operating the world’s largest e-commerce platform, Amazon generates more than $68 billion of annual advertising revenue, mostly by selling advertising space on its e-commerce website and app. More than one million advertisers purchase advertising on Amazon’s platform through auctions.
Amazon has represented to customers that advertise on its website that its advertising prices are set by “second price” auctions that rank participants by a combination of their bid and relevance to shoppers’ searches, and where the winning advertiser only pays the minimum amount necessary, for example, one cent more, to beat the second-place bid, according to the lawsuit.
However, the lawsuit alleges that, in 2019, Amazon started to add surcharges on top of the second-place bid set by the auctions, which drove up the final price paid by the winning bidder and didn’t disclose this change to its digital advertising customers.
The lawsuit also alleges that Amazon’s use of surcharges was intended to get more revenue from advertising customers, who ended up paying more for the same advertising placement. The lawsuit shows that time and time again, Amazon made false or misleading statements to its advertising customers about how prices were determined in its auctions and those customers were unable to find out the truth about the surcharges because Amazon controlled and limited the auction data available to customers.
The lawsuit alleges that Amazon continues to use deceptive surcharges in its digital advertising auction sales.
In filing this lawsuit, the FTC is joined by the attorneys general 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.
“For years, Amazon has misrepresented how it calculates the cost of advertising on its platform,” California Attorney General Rob Bonta said in a statement. “Over the years, Amazon has rigged billions of ad auctions, inflating Amazon’s profits at the expense of Americans who rely on Amazon’s advertising to generate business.”
