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Coalition Of Attorneys General and FTC Allege Amazon Concealed Unfair Charges in Its Digital Advertising Auction Pricing
BALTIMORE, MD – Today, Attorney General Anthony G. Brown, 21 other attorneys general, and the Federal Trade Commission (FTC) filed suit against Amazon, alleging that the company engaged in deceptive and unfair practices that secretly inflated prices in its online search advertising auctions. The complaint, filed in the U.S. District Court for the Western District of Washington, alleges that, for over 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. As a result, the complaint alleges that Amazon’s scheme has likely unlawfully extracted tens of billions of dollars from its unwitting advertising customers.
The FTC and coalition allege Amazon has imposed undisclosed surcharges on its advertising customers, which include over 500,000 small- and 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 highest-ranked bidder for each keyword.
As described in the complaint, Amazon has represented to prospective advertisers for years that Amazon runs “second price” auctions where the winner of the auction would only pay “one cent more than the next highest bidder” for each successful bid for an advertising keyword. However, the complaint alleges that, in practice, Amazon has charged its Sponsored Products advertisers more than winning bid close to 80% of the time and has effectively converted its nominally “second price” auction into a first price, which was contrary to the way the auctions were described by Amazon on its website.
The complaint alleges that Amazon’s unlawful scheme has 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 complaint quotes 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 Amazon’s “clever non-transparent way to charge first price” has been an “incredibly effective way to drive revenue.”
As described in the complaint, because Amazon understood that revealing the surcharges—and the fact that the auction was no longer a genuine second-price auction—would lead to significant backlash from its advertising customers, Amazon spent years concealing the changes from the public. For example, leading up to the high-volume days, Amazon carefully ramps up surcharges to disguise the fact that it is inflating prices. The complaint alleges that Amazon has repeatedly deployed such underhanded tactics to increase its surcharges to meet revenue targets.
The complaint alleges that Amazon and its senior executives took active steps to conceal its surcharge pricing system from its advertisers, including giving false and misleading answers to advertisers who asked the company directly if it had changed its auction format, so that they would continue to be deceived about how the prices they pay are set. The complaint quotes from Amazon’s internal documents, stating that 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 for Amazon.
Joining Attorney General Brown and the FTC in filing the complaint are the attorneys general of Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington.
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