California joins FTC in suit against Amazon alleging secretly Inflated Prices

LOS ANGELES (KESQ) - California and 21 other states today joined the Federal Trade Commission in filing suit against Amazon, alleging the e-commerce giant secretly engaged in deceptive and unfair practices that inflated prices in its online search advertising auctions, potentially costing customers tens of billions of dollars.

The complaint alleges that, for over seven years, Amazon has applied undisclosed surcharges, increasing prices that more than 1 million Amazon brands and sellers were required to pay to advertise on its platform.   

As a result, the FTC contends that Amazon has ``likely extracted tens of billions of dollars'' from its unwitting advertising customers.   

``When one of the world's largest online retailers engages in unfair and deceptive conduct, the impact can be staggering,'' FTC Chairman Andrew N. Ferguson said in a statement. ``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 FTC under President Trump won't allow this deception to continue.''   

In a response posted online, Amazon said the FTC had filed ``a misguided lawsuit claiming Amazon misled advertisers about its Sponsored Ads pricing and auction. Amazon strongly disagrees.''

The company stated that its approach to pricing ``contradicts any suggestion of consumer harm. We provide customers the lowest prices every day across the widest selection of products, and work to ensure our retail and grocery prices meet or beat those offered by other retailers.''

The FTC, along with the attorneys general of California, Alaska, Arizona, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington, allege Amazon has imposed undisclosed surcharges on its advertising customers, which include more than 500,000 small- and medium-sized businesses that participated in auctions for advertising placements on Amazon.com and its mobile app.   

``For years, Amazon has misrepresented how it calculates the cost of advertising on its platform,'' according to California Attorney General Rob Bonta. ``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. I'm proud to stand alongside the FTC and my colleagues across the nation in protecting our small and medium-sized businesses from being taken advantage of by this multi-trillion-dollar company.''   

In the auctions, according to the FTC, prospective advertisers bid to place Sponsored Product ads, Sponsored Brands ads and Display Ads alongside the results that appear when a consumer searches for a product using a keyword on Amazon's store. Placements are auctioned to the highest-ranked bidder for each keyword.

The suit was filed in U.S. District Court for the Western District of Washington.

According to the suit, Amazon represented to prospective advertisers for years that Amazon runs ``second price'' auctions where the winner of the auction would only pay ``one cent more than the next highest bidder'' for each successful bid for an advertising keyword.

However, in practice, Amazon has charged its Sponsored Products advertisers their own winning bid close to 80% of the time and effectively converted its nominally second price auction into a first price auction, the suit alleges.

The complaint alleges that Amazon's allegedly unlawful scheme has generated tens of billions of dollars of revenue for the company by substantially increasing the prices charged to advertisers on ordinary shopping days and applying far greater increases to prices on high-volume shopping days like Prime Day and Black Friday.   

The complaint quotes notes from a 2024 discussion among senior executives, including the head of Amazon Ads and Amazon's Chief Digital Economist, where it was acknowledged that Amazon's "clever non-transparent way to charge first price'' has been an ``incredibly effective way to drive revenue."