FTC Accuses Amazon of Secretly Inflating Ad Prices

The US Federal Trade Commission (FTC), together with the attorneys general of 22 states, has filed suit against Amazon. According to the regulator, the company used a “secret advertising markup” to artificially inflate the cost of ad placements on its website and app. The complaint alleges that Amazon violated the FTC Act as well as more than a dozen individual state laws.

How the scheme worked

Amazon's ad auctions run on a “second-price” model: the winner should only have to pay one cent more than the participant who submitted the second-highest bid. According to the complaint, however, Amazon had been “manipulating” these auctions since 2019. After determining the winner and the runner-up, the platform would swap in a higher auction price, calculated to maximize its own profit and reduce the effectiveness of customers' ad campaigns.

Telling is an internal turn of phrase cited by the FTC: according to the senior vice president in charge of the advertising business, the second price is “not set by an actual bidder, but by Amazon itself” — in the form of “a proxy second price that we compute.” By the regulator's estimate, this practice “likely unlawfully extracted more than $20 billion” from the pockets of unsuspecting advertisers.

FTC Chairman Andrew Ferguson, in a blog post about the lawsuit, said that the increased advertising costs “were largely passed on to American consumers.”

Amazon's response

The company called the lawsuit “wrong” and said it makes claims that “fundamentally misunderstand advertiser behavior.” According to Amazon, between 2019 and 2024 the average winning bid for Sponsored Products search ads actually fell by 50%. The company also disputes the claim that rising ad prices were passed on to end shoppers.

The new case begins almost a year after Amazon agreed to pay $2.5 billion to settle a previous FTC lawsuit — one concerning its Prime subscription sign-up practices.

Source: The Verge