The Amazon Tax

The Amazon Tax refers to the practice of Amazon charging businesses to promote their products through search ads on its platform. This is not a true tax, as it does not generate public benefits like medical research or parks. Instead, it is a form of legal theft that costs Amazon a significant amount of money each year—over $50 billion—while making products more expensive or discouraging the development of new ones.

Amazon makes billions of dollars in profit from search ad revenue every week, with each ad often designed to steer consumers away from the best-reviewed, lowest-returning, and most affordable products. The ads may make the search experience worse, as sellers must bid on ads to protect their sales. This zero-sum game leads to fewer total sales in the category, as businesses continue to spend on ads to maintain their market share.

Traditional ads can increase demand, but zero-sum search ads do not have this effect. Instead, they create a static pie where merchants compete for a share of the same sales. Studies suggest that ecommerce sites with search ads sell fewer items than those without. The highest-yielding ad my publisher tested cost just a dollar per click, with Amazon charging over $50 billion annually for these ads. The actual cost of these ads is borne by consumers, as they drive up prices or stifle innovation in the marketplace.