RESOLVING THE LEDGER
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The Federal Trade Commission and 22 states on Monday sued Amazon over allegations that the e-commerce giant secretly inflated prices in its online search advertising auctions, potentially costing customers tens of billions of dollars.The lawsuit alleges that the undisclosed surcharges were applied for seven years, increasing the prices that more than 1 million Amazon brands and sellers were required to pay to advertise on its platform.\u00a0The FTC\u0027s lawsuit was joined by the attorneys general of Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington.\u00a0The lawsuit centers on so-called second-price auctions, the industry standard for digital ad deals. Amazon informed businesses that they would pay only "one cent more" than the second-place bidder for an advertising keyword, but the lawsuit alleges that the retailer charged the winners their own price about 80% of the time.\u00a0That raised costs for businesses, alleged the FTC and states joining the suit."When one of the world\u0027s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering," FTC Chairman Andrew N. Ferguson said in a statement. "Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers."Amazon called the lawsuit "misguided," and said that the average winning bids for sponsored product ads dropped 50% from 2019 to 2025."The FTC\u0027s claim fundamentally misunderstands how advertisers operate," the company\u00a0said in a statement. "Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics."Amazon added, "Even accepting the FTC\u0027s flawed premise that advertisers do not adjust bids, we estimate they saved over $8 billion from 2021 to 2025 as a result of Amazon prioritizing ad relevancy over selecting ads on bid price alone."Internal documentsInternal Amazon documents suggest the retailer was aware that advertisers were bidding based on their belief they were taking part in a true second-price auction, but that employees allegedly discussed raising prices while "hoping that advertisers don\u0027t notice and decrease bids or ad spend," according to an Amazon executive cited in the FTC\u0027s complaint.\u00a0Amazon allegedly tested how much it could increase hidden charges without being detected by advertisers, according to North Carolina Attorney General Jeff Jackson."Amazon takes great pains to actively conceal from customers the fact that it inflates its purported auction prices," the lawsuit alleged. "As Amazon\u0027s confidence that its advertising customers are unaware of its conduct has grown, it has substantially increased its hidden surcharges."New York Attorney General Letitia James said in a statement that the FTC and states are seeking a court order to bar Amazon from pursuing the "illegal scheme" and to require the company to pay penalties, restitution and other damages.
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