Amazon is facing a lawsuit from the Federal Trade Commission (FTC) along with 22 state attorneys general, alleging that the company covertly escalated prices during its search advertising auctions over a period of more than seven years. According to the complaint, Amazon’s executives were aware of and actively concealed these practices, fearing that transparency could erode the trust of advertisers.
Allegations of Price Manipulation
The complaint reveals that Amazon’s advertising auctions, crucial to its ad revenue nearing $70 billion by 2025, consist of two types: first-price and second-price auctions. The latter, known as Generalised Second Price (GSP) auctions, typically result in advertisers paying slightly more than the next highest bid. However, the FTC claims that in 2019, Amazon added a “hidden” surcharge – referred to internally as a “soft reserve price” – to these auctions, causing advertisers to pay significantly more than the auction would typically dictate.
This alleged manipulation extended to major shopping events like Prime Day and Black Friday, where Amazon reportedly increased prices even further. As a consequence, the FTC asserts that over 1 million brands were affected, producing substantial revenue for Amazon while imposing higher prices largely passed on to consumers.
Amazon’s Defence
In response, Amazon issued a lengthy blog post disputing the FTC’s accusations, arguing that the cost per click for its Sponsored Product Ads remained stable when adjusted for inflation between 2019 and 2024, while noting an increase in conversion rates by 24%. The company maintains that the FTC’s understanding of its operations is flawed, emphasising that advertisers set their bids based on real-world outcomes rather than auction mechanics.
Amazon also contends that the practices under scrutiny are standard industry procedures and that the FTC’s use of internal documents was selective. The company stated that brainstorming emails, which contained what the FTC saw as incriminating suggestions, did not reflect overall intent or strategy.
This lawsuit is part of a series of FTC actions against Amazon, following previous settlements over its Prime subscription service and ongoing litigation regarding its alleged monopoly in online retail.
The Impact on Advertisers
Such legal challenges could take considerable time to resolve, and despite the allegations, Amazon remains a pivotal player in the advertising space, controlling a vast portion of the U.S. retail media market. Emarketer principal analyst Zak Stambor remarked that Amazon’s formidable hold over advertisers, bolstered by its significant share of e-commerce sales, presents a unique challenge for advertisers seeking to distance themselves from the platform.
Reporting based on coverage first published by retaildive.com.