WASHINGTON, D.C. - Oklahoma joined the Federal Trade Commission and 21 other states in a lawsuit alleging that e-commerce giant Amazon concealed unfair charges in its digital advertising auction pricing.
The 181-page complaint was filed on Aug. 31 in the United States District Court Western District of Washington. The document can be read in full at ftc.gov/system/files/ftc_gov/ pdf/AmazonAds-Complaint. pdf.
It alleges that for more than seven years Amazon has “covertly and substantially increased the prices that more than one million brands and sellers were required to pay to advertise on its platform by ... secretly inflating prices in its online search advertising auctions.” The scheme, according to a press release on the FTC website, ftc.gov, potentially has taken “tens of billions of dollars” from unsuspecting advertising customers.
“When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering,” said FTC Chairman Andrew N. Ferguson. “Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers.”
Other states, along with Oklahoma and the FTC, participating in the lawsuit include Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington.
The complaint alleges that the undisclosed surcharges Amazon imposed on its advertising customers “include over 500,000 smalland medium-sized businesses that participated in auctions for advertising placements on Amazon.com and its mobile app.
“In these auctions, prospective advertisers bid to place Sponsored Product ads, Sponsored Brands ads and Display Ads alongside the results that appear when a consumer searches for a product using a keyword on Amazon’s store. Placements are auctioned to the highestranked bidder for each keyword.”
In question are Amazon’s practices regarding “second price” auctions, which were allegedly converted into a “first price” auction. “The type of auction matters to advertisers because it impacts how they bid,” said the FTC press release.
Amazon allegedly admitted to its auction pricing containing “a surcharge hidden in it” beginning in 2019, according to the FTC complaint. The hidden surcharge information was disclosed in an internal Amazon document.
Another document quoted in the complaint alleges that Amazon acknowledged using an “invented auction participant” to increase prices. It alleged that Amazon’s “invented auction participant” and its hidden “proxy second price” bids were essentially shill bids. Another Amazon employee quoted in the complaint stated that “Amazon’s surcharges enable it to obtain prices beyond what [can] be achieved through advertiser competition.”
The complaint also alleges that Amazon’s unlawful scheme generated tens of billions of dollars of revenue for the company by, for example, substantially increasing the prices charged to advertisers on ordinary shopping days and applying far greater increases to prices on high-volume shopping days like Prime Day and Black Friday, the FTC press release said.
The complaint reveals notes from a 2024 discussion between senior executives, including the head of Amazon Ads and Amazon’s Chief Digital Economist, where it was acknowledged that the company’s “clever nontransparent way to charge first price” has been an “incredibly effective way to drive revenue.”
Fear of revealing the surcharges would result in “irrevocable damage to advertiser trust” and a “downward spiral” of advertisers lowering their bids, leading to dramatic losses of revenue led to executives keeping the scheme a secret, according to Amazon’s internal documents, the release said.