FTC Sues Amazon, Accusing the E-Commerce Giant of Misleading Advertisers
The FTC and 22 state attorneys general are suing Amazon, accusing the company of secretly inflating advertising prices through undisclosed changes to its auction system that may have extracted more than $20 billion from advertisers since 2019. "Amazon has millions of advertising customers who were misled into paying significantly higher prices," FTC Chairman Andrew Ferguson said in a statement.…
The Federal Trade Commission (FTC) and 22 state attorneys general have initiated legal action against Amazon, alleging the e-commerce giant has been secretly inflating advertising prices through undisclosed modifications to its auction system. This alleged practice may have cost advertisers over $20 billion since 2019. Amazon, which hosts millions of advertising customers, misled these customers into paying significantly higher prices, a significant portion of which were ultimately passed on to American consumers, stated FTC Chairman Andrew Ferguson.
The lawsuit, filed in the U.S. District Court for the Western District of Washington, centers on Amazon's sponsored products ads, brands ads, and display ads running alongside search results on the company's extensive webstore. Amazon has become the third-largest digital advertising business globally, trailing only Google and Meta, earning more than $68 billion in ads revenue last year, with the majority generated from sponsored products ads.
Recent criticism from third-party sellers and recent policy changes have led some top merchants to boycott advertising on the site due to surging advertising costs. Traditionally, Amazon used a second-price auction system, where advertisers only pay the least bid amount needed to win. However, the FTC alleges that in 2019, Amazon changed its auction rules without notice, adding an undisclosed surcharge, referred to as a soft reserve price, which led to higher ad prices.
The agency claims that this change was made because Amazon was unhappy about the revenue generated by its advertising auctions. Internal communications between Amazon ad executives allegedly revealed that a fictitious auction participant was used to increase prices. The FTC and the states allege that Amazon's practices violate federal and state consumer protection laws, seeking civil penalties, restitution, and unspecified damages.
Amazon has called the FTC's lawsuit "misguided" and stated that the complaint fundamentally misunderstands how advertisers operate. The company asserts that the agency's lawsuit does not include evidence of consumer price increases and has provided advertisers with guidance about its auctions and pricing in the tools they use to manage their campaigns, promising to continue updating that guidance. Amazon looks forward to presenting its case in court.
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