The Federal Trade Commission on Monday sued Amazon, alleging the e-commerce giant “secretly and systematically overcharged” advertisers on its platform by manipulating its pricing and auction systems.
The lawsuit, which was joined by 22 state attorneys general, argues that Amazon may have reaped more than $20 billion from advertisers by using “hidden surcharges” dating back to a change to its auction rules that took effect in 2019.
“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.”
Amazon responded by stating, “We’ve provided advertisers with guidance about our auctions and pricing in the main tools they use to manage their campaigns, and we continue to update that guidance. We look forward to making our case in court.” The company claimed that its auction systems have saved advertisers $8 billion between 2021 and 2025, not cost them extra.
Recent policy changes have drawn criticism from third-party sellers on Amazon’s marketplace, who have noted rising advertising costs. Some leading merchants even staged a boycott, withholding their ad spend in response.
The company has traditionally employed a “second-price” auction system, informing advertisers that they “only pay the least bid amount needed in order to win,” as outlined in Amazon’s marketing materials.
However, the FTC alleges that in 2019, Amazon changed its auction rules without warning by introducing an undisclosed surcharge referred to as a “soft reserve price,” which has contributed to higher ad prices. “Amazon made this surreptitious change to its auction because it was unhappy about how much revenue its advertising auctions were generating,” the complaint stated, referencing internal communications among Amazon ad executives.
In one exchange, a company executive allegedly admitted to using an “invented auction participant” to artificially inflate prices, according to the FTC.
The FTC and the states allege that Amazon’s practices violate federal and state consumer protection laws. They are seeking civil penalties, restitution, and other unspecified damages.
This lawsuit represents the latest instance of Amazon facing scrutiny from the FTC. Last September, Amazon reached a $2.5 billion settlement with the agency to resolve a separate investigation into its Prime membership program. The company is also anticipated to go to trial next year in a case instituted by the FTC and 17 states, accusing it of wielding its “monopoly power” to inflate prices, suppress third-party sellers, and degrade shopping quality. Amazon has denied any wrongdoing.
