The US Federal Trade Commission and a coalition of US states have initiated legal action against Amazon.com Inc., alleging that the e-commerce behemoth has systematically overcharged advertisers by over $20 billion since 2019. The complaint filed Monday in Seattle federal court alleges that Amazon misled 1.2 million advertising customers, including over 500,000 small and medium businesses, regarding the pricing and terms of the company’s sponsored listings, which are displayed as the top products during searches in its online marketplace. The FTC, responsible for enforcing antitrust and consumer laws, along with 22 state attorneys general, asserts that Amazon executed the purported scheme by distorting the auction process utilised to determine the pricing of advertisements on its platform. The lawsuit has the potential to result in civil penalties amounting to billions of dollars. “Amazon has misrepresented how it calculates the cost of advertising on its platform,” California Attorney General Rob Bonta, who joined the suit, said in a statement. “Over the years, Amazon has rigged billions of ad auctions, inflating Amazon’s profits at the expense of Americans who rely on Amazon’s advertising to generate business.”
The FTC, responsible for enforcing antitrust and consumer laws, had been preparing the lawsuit since at least June, when source indicated that an enforcement action was probable. The litigation signifies the most recent legal confrontation between Amazon and the FTC, which has been scrutinising the company’s operations since at least 2019. An official from the FTC stated on Monday that the investigation was a primary focus. The regulator initiated the lawsuit following an examination of over a million internal Amazon documents acquired via investigatory subpoenas, as stated by an FTC official during a briefing subsequent to the filing of the suit. The investigation benefited from the culture among Amazon employees of meticulously documenting communications, as internal emails and chats revealed extensive discourse regarding the implications of the purported scheme, according to the official. In an emailed statement, Amazon asserted that the lawsuit provided no evidence demonstrating harm to consumers. Amazon’s advertising auctions emphasise the relevance of products to shopper search terms prior to evaluating bid amounts. This approach facilitates shoppers in locating desired items while simultaneously maintaining competitive pricing for advertisers, according to the company. The average cost-per-click for Amazon search ads has remained stable when adjusted for inflation from 2019 to 2024, while the company reported an increase in advertising performance.
According to the statement, Amazon’s auctions have resulted in a savings of $8 billion for advertisers over the five-year period concluding in 2025, rather than incurring additional costs. “The FTC claims advertisers were harmed because they didn’t understand how our auction worked and therefore overpaid,” Amazon said. “Not only do we properly describe our pricing and auctions to advertisers, but this claim fundamentally misunderstands how advertisers behave.” Central to the lawsuit is the FTC’s assertion that Amazon misrepresents the competitiveness of its auctions while artificially raising prices for three of its advertising offerings: Sponsored Products, Sponsored Brands, and Sponsored Display. Amazon since 2012 had used what’s known as a “second price” auction process, according to the suit. Under that process, auction participants are typically ranked “by a combination of their bid and relevance to shoppers’ searches,” and the winning bidder “only pays the minimum amount necessary to beat the second place bidder,” typically one cent, the FTC and states say. Beginning in 2018, the lawsuit claims that Amazon purportedly commenced “secretly manipulating” the auction process to enhance profitability, substituting the price established by the auction “with a higher price intended to optimise Amazon’s profits.”
In an internal email referenced in the complaint, an unnamed senior scientist at Amazon stated that the company achieved the purported manipulation by employing “an invented auction participant representing how much Amazon thinks that particular ad slot is worth.” New York Attorney General Letitia James, who also joined the suit, issued a statement criticising Amazon’s purported behaviour concerning ad auctions. “Consumers across the country are likely paying more for everything from groceries to electronics because Amazon has wrongfully inflated its ad prices,” James said. “Deceptive practices like this hurt consumers and small businesses, and we are taking Amazon to court to get justice for those who were harmed.” Last year, Amazon consented to a payment of $2.5 billion to settle an alternative investigation concerning its Prime subscription practices. A trial is scheduled for early next year concerning allegations that Amazon is unlawfully monopolising online retail markets, compromising quality for consumers, and imposing excessive charges on sellers. While the FTC faces constraints regarding its capacity to impose monetary penalties, state consumer protection and unfair competition statutes permit the imposition of substantial daily fines, potentially amounting to tens of thousands of dollars. Given the extensive array of advertisements displayed on Amazon’s platform, the cumulative figures escalate rapidly.
The lawsuit addresses a significant sector of expansion for Amazon. Advertising has emerged as a highly profitable and rapidly expanding sector, generating $68.6 billion in revenue in the previous year, according to company filings. That encompasses search advertisements – the sponsored listings that manifest within Amazon’s marketplace – in addition to video advertisements and online display advertising disseminated across the internet. Digital advertising has progressively surpassed other forms as companies with extensive collections of consumer data assert their ability to more effectively target individuals online who are inclined to make purchases. Alphabet Inc.’s Google continues to dominate the market, whereas Amazon holds the position of the third-largest online advertising company. Advertisers face limited options when it comes to matching Amazon’s extensive consumer reach. EMarketer Inc. projects that Amazon’s advertising revenue will increase by 21.4 percent this year, reaching $83.3 billion. “The FTC case is unlikely to knock that business off course anytime soon, but it could still leave a mark,” analyst Zak Stambor said. “The allegations raise uncomfortable questions about how transparent Amazon is with advertisers, and whether they were paying more than they realized.”
