FTC and 22 States Sue Amazon Over Alleged Ad-Rigging Scheme

The US’s main trade regulator and 22 states sued Amazon on Monday, alleging the online retailer “secretly and systematically overcharged” advertisers on Amazon.com.

The Federal Trade Commission (FTC) said these practices led to higher costs for customers on items like groceries and other essential goods that are sold on Amazon.

“Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers,” said Andrew Ferguson, the FTC chair.

The agency accused the company of taking in more than $20bn from “hidden surcharges”, in what it deems an “ad-rigging scheme”. Amazon’s advertising business has grown significantly in recent years, becoming the third-largest online advertising marketplace after Google and Meta. The FTC says Amazon generates more than $68bn in ad revenue on its website.

The lawsuit alleges that 1.2 million advertising customers were overcharged since 2019, including more than 500,000 small- and medium-sized businesses.

An Amazon spokesperson pointed the Guardian to a blog post the company published in response to the legal action, which calls the legal action a “misguided lawsuit”.

“Amazon strongly disagrees,” the post reads.

The government’s case hinges on Amazon’s advertising auction system, called “second-price auctions”, that lets the winning bidder pay only slightly more than the second-highest bid. Regulators allege that with this system, Amazon could secretly raise the second-highest bids with a higher “shill” bid of its own.

“We believe Amazon manipulated its ad auctions to inflate what sellers had to pay, adding billions of dollars in costs that ultimately get passed on to customers with higher prices,” said Jeff Jackson, the attorney general for North Carolina, one of the states involved in the suit.

The suit alleges Amazon tested how much it could increase the amount it charges without advertisers flinching. Internal documents show one manager allegedly describing the company’s pricing strategy as “hoping that advertisers don’t notice and decrease bids or ad spend”.

Amazon denied these allegations and said the company gives “customers the lowest prices every day across the widest selection of products”.

“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 wrote in its blog post. “That is patently false.”

Rob Bonta, the attorney general for California, noted in a press conference that the lawsuit arises from a partnership between conservative states, liberal ones, and the federal government. He said this lawsuit is focusing on Amazon’s alleged unlawful activities and its deception around those practices.

“Amazon’s price inflation is illegal, plain and simple,” Bonta said. “This is a massive corporation. They can be wildly successful and also follow the law.”

The federal agency and states are asking the court to bar Amazon from continuing the allegedly deceptive advertising practices, along with paying civil penalties and refunding advertisers.