- Amazon accused of creating fake auction participants to raise advertiser bids
- The number of advertisers paying more than anticipated doubled in three years
- Amazon argues the FTC's lawsuit is misguided and that its practices are normal
The Federal Trade Commission together with 22 US states has filed a lawsuit against Amazon, accusing it of manipulating its advertising auctions to make advertisers pay more.
According to the case, the practice affected more than one million brands and sellers, more than half of which were small and medium sized businesses.
This particular case centers around Sponsored Products, Sponsored Brands and Display/Sponsored Display advertising – ads that appear alongside Amazon's product search results where sellers bid for the most prominent positions to gain more exposure to potential customers.
Amazon accused of extracting billions in extra ad revenue
According to the case, Amazon changed the mechanics of its bidding scheme without properly telling advertisers. Under the old model, winning bidders should have paid one cent more than the second-place bidder rather than their proposed maximum.
But the company has been slated for using a so-called "invented auction participant" to push the price higher, scamming bidders out of more money.
The FTC warns that the proportion of Sponsored Products bidders paying more than they should have rose dramatically over the years, from around 30-40% in 2021 to around 80% by 2024, effectively doubling the number of victims within three years.
Internal documents cited by the lawsuit allegedly imply that Amazon workers understood that advertisers believed they were participating in conventional auctions without the shady practices.
"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'," the FTC wrote.
The company has since responded to the FTC in an entire blog post, describing the case as "misguided," arguing that the FTC has misunderstood how its ad auctions work and asserting that soft reserve prices are a normal industry practice.
Unless Amazon and the FTC reach an agreement, the case could result in trial. The FTC and the 22 states involved want Amazon to cease the highlighted practices and remunerate affected advertisers.
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