FTC Files Suit Against Amazon Over Ad Auction Practices
The Federal Trade Commission (FTC), together with 22 state attorneys general, has filed a lawsuit against Amazon, alleging deceptive ad-pricing practices in its search advertising auctions. The Amazon ad auction controversy centers on claims that the e-commerce giant secretly inflated prices for search ads over a period of more than seven years, impacting over a million brands and generating tens of billions of dollars in revenue for Amazon itself. This case has reignited industry-wide concerns about transparency in retail media and the broader ad tech landscape.
Allegations of Concealed Surcharges
According to the FTC complaint, Amazon executives played an active role in concealing these surcharges, fearing that disclosure could inflict “irrevocable damage to advertiser trust.” Internal documents cited by the agency highlight Amazon’s concern about potential backlash if advertisers became aware of these hidden fees. The Amazon ad auction process, particularly for Sponsored Product Ads, constitutes the bulk of Amazon’s $70 billion ad business, making it the third-largest digital ad platform behind Google and Meta.
The complaint outlines how Amazon operated both first-price and second-price auctions for advertisers. In a first-price auction, advertisers pay the full amount of their winning bid, while in a second-price auction, winners pay just one cent more than the next highest bidder. Notably, in 2019, Amazon reportedly introduced a “hidden” surcharge within its second-price (Generalized Second-Price or GSP) auctions, also referred to internally as a “soft reserve price.” This change led advertisers to pay substantially more than the original auction mechanism would require, particularly during peak shopping events such as Prime Day and Black Friday. The FTC claims that Amazon purposely ramped up these prices ahead of major sales periods, masking the extent of the increases from advertisers.
Industry Impact and Reaction
With Amazon controlling approximately 75% of the U.S. retail media market, the alleged practices have far-reaching implications. The Amazon ad auction lawsuit raises uncomfortable questions about how transparent Amazon has been with its advertising customers. According to eMarketer principal analyst Zak Stambor, the allegations make it unclear whether advertisers were aware of the true cost of their campaigns or if they were paying more than necessary due to undisclosed fees.
FTC Chairman Andrew N. Ferguson emphasized the scale of the impact, stating, “Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers.” The case arrives amid growing calls for standardization and transparency in retail media, a sector where Amazon’s dominance leaves brands with few viable alternatives.
Amazon’s Defense
In response to the lawsuit, Amazon rejected the FTC’s claims, asserting that its auction practices did not harm advertisers or consumers. The company published a detailed blog post arguing that the cost per click for Sponsored Product Ads remained flat when adjusted for inflation between 2019 and 2024, while conversion rates improved by 24%. Amazon insisted that advertisers adjust their bids based on real-world performance metrics, not on the specifics of auction mechanics.
Amazon also argued that the use of “soft reserve prices” is a standard industry practice and accused the FTC of cherry-picking materials from outdated or incomplete documents. The company dismissed the notion of a coordinated internal effort to deceive advertisers, noting that internal emails are often used for brainstorming and do not necessarily reflect collective intent or policy.
Broader Implications for Retail Media and Advertisers
This lawsuit is the third major FTC case brought against Amazon in recent years, following previous actions related to its Prime subscription program and alleged monopoly practices in online retail. Cases of this scale often take years to resolve, and the immediate response from advertisers is likely to remain subdued given Amazon’s dominant position in the retail ecosystem. As Zak Stambor notes, “Advertisers face a tough challenge because Amazon is incredibly hard to walk away from,” largely due to the company’s massive share of global e-commerce sales and the appeal of its Prime membership program.
Looking Ahead
The Amazon ad auction lawsuit is poised to become a landmark case in the ongoing debate over transparency and fairness in digital advertising. As scrutiny intensifies, both brands and industry observers will be watching closely to see how this legal battle unfolds and what it means for the future of retail media and ad tech.
This article is inspired by content from Original Source. It has been rephrased for originality. Images are credited to the original source.