The Federal Trade Commission filed a bombshell lawsuit against Amazon, alleging that the e-commerce giant illegally reaped tens of billions of dollars by manipulating the prices businesses paid to advertise on its website.
The explosive, 181-page complaint filed on Monday is joined by a bipartisan group of 22 attorneys general representing California, Florida, New York, Louisiana and Iowa, who allege that Amazon bilked advertisers by stealthily placing its own bids in ad auctions to jack up prices.
Advertisers were allegedly duped out of $20 billion over seven years beginning in 2018 because of the inflated ad prices, according to the complaint by the FTC, chaired by Andrew Ferguson.
“Since 2019, Amazon.com has secretly and systematically overcharged its approximately 1.2 million advertising customers,” according the lawsuit. “Amazon overrides and replaces the actual auction results with higher prices set by Amazon to increase its profits.”
The suit was filed in Seattle federal court and is the third such action brought the agency against the e-commerce giant. Last year, Amazon agreed to a $2.5 billion settlement with the FTC over charges that it knowingly trapped customers into paying for Prime subscriptions.
Amazon is the third-largest digital-ad platform behind Google and Meta, earning $68 billion from ads last year.
The FTC claims that Amazon’s strategy of illegally raising prices started when it entered its own bids in the auctions it ran to solicit advertising, the suit alleges. The advertisers are competing for exposure on Amazon’s platform to position their brand at the top each time a shopper searches for a product.
The so-called “soft reserve” Amazon bids raised the auction floor for bids, but the other competing merchants were not aware that Amazon submitted a bid to goose the results.
The complaint alleges that Amazon’s strategy raised the pay-per-click ad cost by 50% on major shopping days, according to the Wall Street Journal. In recent years, Amazon has intervened in auctions to raise the minimum price 70% to 80% of the time, according to FTC officials.
“Amazon gave its customers no notice of this change and took affirmative steps to conceal it,” according to the lawsuit.
Amazon on Monday said its ad practices had no impact on consumers and claimed that it properly disclosed how its auctions work. It said its ad technology has improved to help advertisers better attract customers and maximize sales, thus increasing its value.
“After reviewing approximately 1.5 million pages spanning six years, the FTC leans on a handful of simplified communications to allege a companywide effort to deceive,” Amazon said in a Monday statement. “That is patently false.”
The digital ad deception allegedly started in 2018 under founder and executive chairman Jeff Bezos. For years, Amazon has secretly inflated the auction prices for three of its advertising products: Sponsored Products, Sponsored Brands and Sponsored Display, the suit claims.
On Amazon’s crucial post-Thanksgiving “Black Friday” event in 2024, an Amazon executive “discussed ‘dial[ing] up’ reserve prices immediately because revenue ‘came in under’ Amazon’s financial plan for Sponsored Products advertising,” the suit alleged.
Among the victims of this scheme are some 500,000 small and medium-size businesses, regulators allege.
“It’s odd that Amazon’s first response to this suit is that consumers — buyers on Amazon — are not harmed, because that’s not required for the FTC to win this case,” Rebecca Haw Allensworth, a Vanderbilt Law prof specializing in antitrust, told The Post.
“The harm alleged is to advertisers, not purchasers of goods on the platform,” she added.
“For Amazon to win, it will have to show that it either did not falsely describe its auctions or that if it did so, it didn’t matter because advertisers don’t make bidding decisions based on the internal mechanics of the auctions.”
Last year, similar antitrust charges were brought against Google and a federal judge found that the Silicon Valley giant was a monopolist.
“It helps the FTC to have a diverse group of states in building a coalition…in the world of politics it’s a helpful coalition to have. That’s a good sign.” said former FTC chairman William Kovacic, who is
Director of the Competition Law Center at George Washington University.
Amazon’s shares were down 3% to about $259 on Monday afternoon.