The Federal Trade Commission (FTC), alongside 22 state attorneys general, has filed a lawsuit against Amazon, accusing the company of employing a “secret ad surcharge” to inflate advertising costs on its digital platforms. According to FTC chairman Andrew Ferguson, these increased ad prices have subsequently been transferred to American consumers. The lawsuit asserts that Amazon’s actions breach the FTC Act and multiple state laws. This legal action follows a settlement nearly a year earlier, in which Amazon paid $2.5 billion over allegations concerning its Prime subscription practices.
Allegations of Auction Manipulation
The complaint focuses on Amazon’s “second price” auction system. This method stipulates that the highest bidder pays just one cent more than the next highest bidder for ad placements. However, the FTC alleges that Amazon has manipulated these auctions since 2019. Specifically, the agency claims Amazon intervenes to replace the established winning price with an inflated figure to maximise its own profits, while reducing the cost efficiency for advertisers. Internally, a Senior Vice President from Amazon Ads explained this as a calculated “proxy 2nd price,” not derived from actual bids but determined by Amazon itself.
Financial Impact of Alleged Practices
The lawsuit claims Amazon’s tactics have unlawfully extracted over $20 billion from unsuspecting advertising clients. Despite these allegations, Amazon defends its practices in a blog post, describing the lawsuit as “misguided.” The company highlights that between 2019 and 2024, the average winning bid for Sponsored Products search ads decreased by 50%. Furthermore, Amazon challenges the assertion that higher ad prices were shifted to consumers.
Reporting based on coverage first published by theverge.com.