SUMMARYThe FTC and 22 state attorneys general sued Amazon in U.S. District Court for the Western District of Washington, accusing the company of secretly changing its ad auction system in 2019 to inflate prices for sponsored products, brand, and display ads. The complaint alleges the changes may have cost advertisers more than $20 billion since 2019 and were passed on to consumers, while Amazon denied wrongdoing and said the lawsuit misunderstands how its advertising tools work.
The FTC and 22 state attorneys general are suing Amazon, accusing the company of secretly inflating advertising prices through undisclosed changes to its auction system that may have extracted more than $20 billion from advertisers since 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." CNBC reports: The complaint, which was filed in U.S. District Court for the Western District of Washington, centers on Amazon's sponsored products ads, brands ads and display ads that run alongside search results on its sprawling webstore. Amazon has amassed the third-largest digital advertising business globally, trailing only Google and Meta. The company hauled in more than $68 billion in ads revenue last year, with the lion's share coming from sales of sponsored products ads. Third-party sellers who hawk their wares on Amazon's marketplace have recently criticized surging advertising costs on the site, including a string of recent policy changes, which led to some top merchants withholding their ad spend in a boycott. The company has traditionally used a "second-price" auction system, wherein it told advertisers they "only pay the least bid amount needed in order to win," the complaint states, citing Amazon's own marketing materials.
The FTC alleges in its complaint that Amazon in 2019 changed its auction rules without notice by adding an undisclosed surcharge it referred to as a "soft reserve price," which led 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 agency said in its complaint, which cites internal communications between Amazon ad executives. In one exchange, a company executive allegedly acknowledged it uses an "invented auction participant" to increase prices, the FTC said. The FTC and the states alleged Amazon's practices violate federal and state consumer protection laws, and they're seeking civil penalties, restitution and other unspecified damages. In a blog post, Amazon called the FTC's lawsuit "misguided" and said the complaint "fundamentally misunderstands how advertisers operate." The company added that the agency's lawsuit doesn't include evidence of consumer price increases.
"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," the company said. "We look forward to making our case in court."