US regulator claims Amazon manipulated advertising prices

The US Federal Trade Commission has filed a lawsuit against Amazon alleging that the ecommerce behemoth deceived advertisers by manipulating the prices they paid to promote products on its platform.

The suit, filed in federal court in Seattle on Monday alongside a bipartisan group of 22 states, claims that Amazon illegally made $20bn from “unwitting advertising customers”.

The scheme involved “substantial overcharges and cost increases” for some 1.2mn US advertising customers, including more than 500,000 small and medium-sized businesses, leading to higher prices for consumers, the FTC lawsuit claims.

FTC chair Andrew Ferguson warned that “unfair and deceptive conduct” from the massive online retailer could have a “staggering” impact. He said higher ad costs “were largely passed on to American consumers”.

Monday’s action marks the US consumer and competition watchdog’s third significant federal lawsuit against Amazon in recent years, as the federal government has taken an increasingly aggressive enforcement stance towards Big Tech.

Amazon last year reached a $2.5bn settlement over allegedly duping customers into signing up for its Prime service, agreeing to pay the largest civil penalty for a violation of the regulator’s rules. In 2023, it reached a $25mn settlement over privacy issues with its Alexa voice assistant.

Another lawsuit, set for trial next year, alleges that the online retailer illegally uses monopoly power to overcharge consumers and impede competitors.

The FTC on Monday accused Amazon of “secretly manipulating” its advertising auctions since 2018 in violation of federal laws prohibiting “unfair or deceptive” commercial practices.

The company said that its auctions operated using a “second-price” model, where advertisers were ranked by bid and relevance, only paying the minimum amount necessary to beat the second-place bidder.

But the FTC alleges Amazon introduced a price floor in most auctions, pushing up the minimum price.

The suit claims Amazon charged advertisers more than the second highest bid and that these “undisclosed surcharges” or fees had been applied to household essentials and other low-margin products where cost increases were probably passed on to consumers.

The specific amounts that Amazon is alleged to have inflated prices by on average were redacted in court filings.

Shares in the $2.8tn ecommerce group fell about 1 per cent following news of the FTC lawsuit, which was first reported by the Wall Street Journal.

Amazon said its approach to ad auctions had not resulted in higher prices for consumers and that the so-called cost-per-click for sponsored products remained flat when adjusted for inflation between 2019 and 2024.

It said it did introduce “reserve prices” to ensure its ads were priced at “market value”, but that these were fully disclosed to advertisers.

“The FTC’s claim fundamentally misunderstands how advertisers operate,” Amazon said. “Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics.”

Amazon made $68.6bn in revenue from advertising last year, giving it the third largest digital advertising business behind Google and Meta.

The lawsuit marks the latest effort by the US government to crack down on what it sees as anti-competitive practices in digital advertising.

A federal judge last year ruled in a case brought by the Department of Justice that Google maintained an illegal monopoly in digital advertising, which could force the company to divest parts of its business.