Amazon faces a major lawsuit brought by the US Federal Trade Commission alongside 22 states, alleging the e-commerce giant rigged advertising auction prices on its platform, inflating costs to the tune of $20 billion over a seven-year period. The case centers on Amazon’s Sponsored Products, Sponsored Brands, and Sponsored Display ads used by over a million brands.
- Amazon allegedly used fake bidders to inflate ad auction prices.
- More than one million advertisers, mostly SMEs, affected over seven years.
- FTC and states seek to stop the practice and compensate harmed advertisers.
What happened
The US Federal Trade Commission together with 22 states filed a suit against Amazon accusing the company of manipulating its auction system for advertising placements. The lawsuit focuses on Sponsored Products, Sponsored Brands, and Sponsored Display ads where brands bid for premium product placement in search results.
According to the complaint, Amazon switched from a familiar second-price auction format, where winners pay just a penny more than the second highest bid, to a system that included fictitious bidders. This pushed winning bids artificially higher, causing advertisers to overpay significantly over time.
Why it matters
This litigation highlights concerns about transparency and fairness in digital ad marketplaces, critical for businesses relying on e-commerce platforms to reach customers. Over one million brands, more than half small and medium enterprises, are alleged victims, experiencing inflated advertising costs unjustly for years.
The internal documents cited by the FTC reveal Amazon executives were aware that these auction changes could deceive advertisers, ensuring revenue growth through a 'clever non-transparent' method. If proven, it could reshape regulatory scrutiny of online advertising practices across major tech platforms.
What to watch next
Amazon has publicly denied the allegations, describing the lawsuit as flawed and asserting its auction methods incorporate common industry features like soft reserve pricing. The company's response signals it plans to vigorously contest the case if it proceeds to trial.
The FTC and the states are seeking injunctive relief to halt the contested auction practices and seek compensation for affected advertisers. The outcome could have broad implications for how digital advertising auctions are regulated and how platforms structure ad sales moving forward.