The Federal Trade Commission and 22 states filed a lawsuit against Amazon on Monday, accusing the retailer of secretly inflating advertising prices on its platform. TechCrunch reported that the complaint alleges Amazon spent more than seven years quietly increasing costs for more than 1 million brands and sellers, generating tens of billions of dollars in additional revenue.
The 22 states joining the FTC in the action are 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. The case focuses on Amazon’s Sponsored Products ads, Sponsored Brands ads, and Display ads displayed alongside search results.
Amazon told more than 500,000 small and medium-sized businesses that it used a second-price auction where the winner paid one cent more than the runner-up bid, according to the complaint. Starting in 2019, the FTC alleges, Amazon introduced a hidden surcharge internally called a "soft reserve price" alongside an "invented auction participant" to artificially elevate clearing prices. The FTC claims this mechanism led Amazon to charge Sponsored Products advertisers their full winning bid close to 80% of the time.
Regulators allege Amazon concealed the system because transparency would have led sellers to lower their bids and reduce company revenue. Amazon generated more than $68 billion in advertising revenue last year.
In a blog post, Amazon called the lawsuit "misguided" and stated that the complaint "fundamentally misunderstands how advertisers operate." The company said its auctions evaluate billions of bids across various placements and formats, noting that prices naturally fluctuate and advertisers are properly informed about how the pricing system works.
