Amazon is now being hit by a comprehensive new lawsuit filed by the Federal Trade Commission and 22 state attorneys general that accuses the online company of secretly raising the price of advertising for its products. claimed the new techniques reaped in excess of 20 billion dollars of the more than 1 million brands and sellers who used Amazon’s platform over a period of approximately 7 years, many of which was then passed on to ordinary consumers. The federal court complaint in Seattle involves the auctions that Amazon runs for Sponsored Products, Sponsored Brands and Display ads.
Amazon has claimed for years that it conducts a second-price auctionmeaning that the winning bidder will only pay a certain small bit over the second high bidder. The complaint alleges that Amazon started intermittently manipulating those results in 2018by inserting artificially high second prices or soft reserve prices that advertisers weren’t aware of.
Per internal documents cited by the FTC, in subsequent years the firm billed sponsored product advertisers close to their actual full winning bid almost 80% of the time, converting the advertised second-price auction into what was in effect a first-price auction.
The regulators state Amazon attempted to conceal these practice changes, continuing to assure customers that pricing was determined solely by competition among bidders. Over a half million of these suppliers were small and medium-sized businesses (SMBs) that used Amazon’s marketplace to find new customers. FTC Chair Andrew Ferguson said, the FTC’s investigation revealed that Amazon had millions of advertising customers who were duped into paying far higher prices, and those higher prices were largely borne by American consumers.
California Attorney General Rob Bonta said, the company deliberately rigged billions of ad auctions, deepening its dominance and rigging the system to inflate its profits at the expense of other businesses that relied on the platform. New York Attorney General Letitia James and attorneys general from other states including Florida Washington Illinois andothers joined the bipartisan coalition.
Amazon vigorously denied the claims. In a public statement Amazon called the lawsuit ‘misguided and flawed by regulators delving into years-old internal memos’. Amazon claimed that its advertising tools have reduced costs for sellers and cited research demonstrating that the average cost-per-click in Amazon’s ad programs has remained stable recently. The company said that advertising has accounted for a significant and growing part of its business with sales in excess of 68 billion dollars last year. The case is the most recent of Amazon’s high profile legal confrontations.
It follows an earlier FTC investigation into the company’s Prime subscription services, with another monopolization case currently awaiting trial. The latest suit covers the advertising part of the business, which has become one of the world’s biggest digital advertisers after Google and Meta. Correct/Verify. If the allegations are substantiated the potential economic and operational effects could be enormous. Leading states and the FTC are pushing for monetary relief which could amounts to billions with court injunctions against greater transparency in ad pricing.
