Abstract:
The U.S. Federal Trade Commission (FTC), together with the attorneys general of 22 states, filed a lawsuit against Amazon, accusing it of setting up "secret advertising surcharges" to drive up advertisers' advertising costs on Amazon's website and apps. FTC Chairman Andrew Ferguson said that much of this additional advertising spending was ultimately passed on to American consumers.
The complaint alleges that Amazon violated the Federal Trade Commission Act and more than a dozen state laws. The case comes nearly a year after Amazon agreed to pay $2.5 billion to settle charges related to its Prime subscription business.
Amazon advertising usually uses a "second price" bidding mechanism, which means that the winning advertiser only needs to pay one cent higher than the second highest bidder in principle. However, the FTC alleged that Amazon has been manipulating the bidding process since 2019.
According to the complaint, after the auction ends and the highest and second-highest bids are determined, Amazon’s advertising department will replace the price originally determined by the auction with a set of higher prices designed to maximize the company’s profits and reduce the cost efficiency of advertising. An internal statement from the head of Amazon’s advertising department shows that the so-called “second price” is not determined by the actual bidder, but is an “agent second price” calculated by Amazon.
The FTC believes this practice may have illegally collected more than $20 billion from advertisers without their knowledge. Amazon issued a statement, calling the FTC’s lawsuit “misleading and lacking merit” and saying that the FTC “fundamentally misunderstood the advertiser’s behavior.” Amazon also said that the average winning bid for Sponsored Products search ads dropped 50% from 2019 to 2024.
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