FTC and 22 States Sue Amazon Over Secret Ad Charges
The Federal Trade Commission (FTC) along with 22 states has filed a lawsuit against Amazon, alleging that the company has been secretly inflating ad prices on its platform. This lawsuit accuses Amazon of adding hidden surcharges to its ad auctions, a practice that has been ongoing since 2019, according to the FTC and multiple reports including from The Verge and TechCrunch.
The lawsuit claims that Amazon's approach has misled advertisers, causing them to overpay for ad placements on its website. This "secret ad surcharge" scheme has reportedly affected more than one million brands and sellers, with Amazon allegedly generating tens of billions of dollars in extra revenue. The FTC suggests that consumers may have faced higher prices as a result, though Amazon disputes this impact, as noted by TechCrunch.
In particular, the FTC's complaint focuses on Amazon's manipulation of the "second-price" auction format. In such a format, the winning bidder should pay just a cent more than the next highest bidder. However, the FTC alleges Amazon was setting a "proxy 2nd price," not determined by another bidder, resulting in advertisers essentially paying their own bid price, undermining the auction model's intent, The Verge reports.
Amazon has responded to these allegations by calling the lawsuit "misguided" and asserting that it fails to understand typical advertiser behavior. The company defends its practices, emphasizing that the pricing system is well-communicated to advertisers and suggesting that pricing variations are a natural part of evaluating billions of bids across different formats.
The Engadget report reveals that the FTC’s allegations include some internal objections within Amazon, where employees questioned the long-term effects of these pricing strategies. Internal memos reportedly expressed concerns that such practices, though increasing short-term revenue, could harm Amazon in the long run.
This lawsuit adds to the ongoing scrutiny and regulatory challenges Amazon faces, highlighting further tension between big tech companies and regulators. The lawsuit seeks to halt Amazon's advertising pricing strategy and potentially reclaim damages.
As the case unfolds, the outcome could significantly impact not only Amazon's advertising business but also set a precedent for how advertising practices are managed across major online platforms. The proceedings continue as Amazon and the involved state attorneys general look toward a resolution.