The Federal Trade Commission and 22 state attorneys general filed a lawsuit Monday against Amazon, alleging the online mega-retailer secretly inflated its prices for more than 1 million advertisers who paid to promote products.
The FTC alleges in the federal lawsuit filed in Washington state, where Amazon is based, that the retailer since 2018 has manipulated the “auctions” it uses to set ad prices on its platform, particularly for companies that sought “Sponsored Product,” “Sponsored Brand” or “Sponsored Display” labels.
The complaint alleges that Amazon’s practices generated tens of billions of dollars and that ad prices were inflated even more on “high-volume shopping days,” such as Prime Day and Black Friday.
“When one of the world’s 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.”
The higher costs were largely passed on to American consumers, Ferguson added.
In a lengthy response, Amazon denied any harm was done to consumers or advertisers. (Amazon Executive Chairman Jeff Bezos owns The Washington Post.)
“The FTC wants the public to believe this case is about higher prices for consumers. It is not,” the company said in a statement.
Amazon also said the FTC’s claim “fundamentally misunderstands” how its advertisers operate.
“Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics,” Amazon stated. “Even accepting the FTC’s 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.”
The FTC’s lawsuit centers on how Amazon sells advertising placements through real-time auctions that last milliseconds. Advertisers bid on keywords, such as “dark roast coffee” for coffee brands competing for ad space around the search term. The winner of the auction would then receive a coveted “Sponsored Product” label whenever a potential consumer searches for “dark roast coffee.”
The type of auction Amazon runs is known as a “second-price auction,” in which a seller bids the maximum it would pay but is assured it would pay only one cent more than the second-highest bid. Traditionally, this has led to a system where advertisers can avoid overpaying, and the company offering the ad placements can do so more efficiently.
But the lawsuit alleges Amazon, unbeknownst to advertisers, inserted an “invented auction participant” that placed what were “essentially shill bids.” The “invented” bidder would place artificially high bids, above what competitors had offered, increasing the price of the placement and leading to advertisers paying more.
According to the complaint, an Amazon employee said that “Amazon’s surcharges enable it to obtain prices beyond what [can] be achieved through advertiser competition.” The complaint further alleges that Amazon worked to hide the price hikes from advertisers.
Amazon said the FTC’s allegation of “a companywide effort to deceive” advertisers was “patently false.”
The 22 states that joined the lawsuit are: 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.
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