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.
“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 complaint by the FTC, chaired by Andrew Ferguson, 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.
“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 would have started 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.
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 in 2018 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.
“Amazon gave its customers no notice of this change and took affirmative steps to conceal it,” according to the lawsuit.
On Amazon’s the 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.
Last year, similar antitrust charges were brought against Google and a federal judge found that the Silicon Valley giant was a monopolist.
Amazon’s shares are down 3% to about $259 on Monday afternoon.
The company did not immediately respond for comment.
