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FTC lawsuit alleges Amazon has been ‘secretly and systematically’ overcharging for ads
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The Federal Trade Commission and 22 state attorneys general have filed a major lawsuit against Amazon, accusing the e-commerce giant of secretly overcharging for digital advertising. The legal action, filed in federal court, alleges Amazon has been systematically manipulating its ad auction system since 2019 to inflate prices paid by advertisers. This represents the latest significant regulatory challenge for the company, coming less than a year after a $2.5 billion settlement over Prime subscription practices.
At the heart of the complaint is Amazon's 'second price' auction model for ads on its website and app. Under this system, the winning bidder is typically supposed to pay just one cent more than the second-highest bid. However, the FTC alleges Amazon replaced this market-determined price with a higher, internally calculated 'proxy 2nd price' designed to maximize its own profits at advertisers' expense.
The complaint details that this practice was internally acknowledged, with Amazon's Senior Vice President in charge of Amazon Ads explaining the auction manipulation in company communications. The FTC argues this artificial inflation has 'likely illegally extracted over $20 billion from unwitting advertising customers' since 2019. Furthermore, the agency contends these higher advertising costs have been largely passed on to American consumers through increased product prices.
Amazon has forcefully disputed these allegations, calling the lawsuit 'misguided' and stating it 'fundamentally misunderstands how advertisers behave.' In a public blog post, the company countered that the average winning bid for its Sponsored Products search ads actually fell by 50% between 2019 and 2024. Amazon also disputed the claim that higher ad costs were passed on to consumers.
The lawsuit alleges violations of the Federal Trade Commission Act and over a dozen state consumer protection laws. It follows a period of intense regulatory scrutiny for Amazon, which has faced multiple antitrust and consumer protection investigations in recent years. The FTC's legal filing builds on allegations first outlined in a broader 2023 antitrust suit against the company.
This legal action is poised to have significant implications for the digital advertising market, where major tech platforms face growing scrutiny over their auction practices. If successful, the lawsuit could force fundamental changes to Amazon's ad business model, which is a major revenue driver for the company. The outcome will also be closely watched as a precedent for regulatory enforcement against alleged anti-competitive practices in online advertising.
Industry analysts note that the case highlights the complex and often opaque nature of programmatic digital advertising auctions. The allegations underscore persistent concerns about market fairness and transparency in online ecosystems dominated by a few large players. A lengthy legal battle is anticipated as Amazon mounts a vigorous defense of its advertising business practices.
