Amazon Faces Accusations of Price Inflation in Ad Auctions: FTC and States File New Suit

Amazon Faces Lawsuit Over Alleged Ad Price Inflation

A recent lawsuit filed by Washington’s attorney general, the Federal Trade Commission (FTC), and 21 other states accuses Amazon of manipulating ad prices on its e-commerce platform.

Amazon has refuted the claims, stating that its ad pricing practices do not harm advertisers or consumers. The company asserts that the FTC’s allegations misrepresent how its system operates.

Ads on Amazon are sold through “second-price” auctions, where businesses specify a maximum price for an ad. The highest bidder pays just one cent more than the second-highest bid, with other bids remaining hidden.

The lawsuit alleges that Amazon began adding surcharges to prices in late 2018, despite claiming to still use a second-price system.

According to the lawsuit filed in U.S. District Court for the Western District of Washington, Amazon allegedly overcharged around 1.2 million ad customers by replacing auction results with higher prices to boost profits, totaling $20 billion.

Washington’s attorney general, Nick Brown, emphasized the importance of ensuring fair treatment for small business owners who rely on Amazon for their livelihoods.

In response to the allegations, Amazon stated that the FTC misunderstands how advertisers operate and highlighted its focus on ad relevance rather than bid price alone, resulting in improved ad performance.

Amazon explained that it has evolved its ad pricing approach over time to prioritize ad relevance, leading to the establishment of minimum prices and reserves for participating in auctions.

The company emphasized that it does not charge advertisers more than their bid and clarified its pricing process to advertisers.

The lawsuit also revealed alleged practices within Amazon, including the insertion of invented auction participants to increase prices, as claimed by an Amazon senior scientist.

The legal action involves the FTC and attorneys general from various states, with additional antitrust allegations against Amazon concerning its online retail dominance.

The plaintiffs seek reforms in Amazon’s practices, along with restitution, civil penalties, and coverage of attorneys’ fees.