Amazon.com Inc. secretly increased advertising charges by as much as 250% above auction-determined prices during major shopping events, according to newly disclosed allegations in a federal lawsuit that raises fresh questions about the company’s advertising practices.
The Federal Trade Commission and 22 states have released previously redacted details from their lawsuit against Amazon, alleging that the company manipulated its online advertising auctions to generate additional revenue while concealing the true reasons for rising costs from advertisers.
According to a Nov. 5 FTC announcement, the company allegedly imposed undisclosed price increases of up to 50% on ordinary shopping days, with surcharges reaching 250% during high-traffic events such as Prime Day and Black Friday.
The allegations provide new details about a pricing system that regulators contend caused substantial financial harm to businesses purchasing advertising on Amazon’s marketplace.
The FTC and participating states initially filed the lawsuit in August in the U.S. District Court for the Western District of Washington. The latest disclosures expand on accusations that Amazon used its control over advertising auctions to charge businesses more than the prices generated through competitive bidding.
Holiday Advertising Costs Under Scrutiny
The newly unsealed allegations describe particularly sharp increases in advertising expenses during peak retail periods, when businesses compete aggressively for visibility among online shoppers.
During the 2021 holiday shopping season, Amazon allegedly increased advertisers’ average cost per click by 20%, according to the FTC. Some advertisers experienced increases exceeding 200%.
Regulators also allege that Amazon adjusted its undisclosed surcharges during the 2022 holiday season, generating an additional $87 million in worldwide revenue.
The alleged pricing practices affected businesses of different sizes, including major advertisers with sophisticated marketing operations.
One large food and beverage advertiser experienced price increases exceeding 100% during Prime Day in 2023, according to the updated complaint. Internal Amazon communications cited by regulators indicated that the higher costs were severely undermining the advertiser’s campaign results.
The disclosures suggest that the alleged surcharges could reduce the financial returns advertisers received from their marketing budgets, even as Amazon collected additional revenue.
Internal Revenue Targets Draw Attention
The FTC’s updated allegations also connect Amazon’s advertising pricing decisions to internal financial objectives.
In 2023, company executives discussed generating an additional $40 million to help meet corporate revenue targets, according to the complaint.
An internal email cited by regulators described efforts to close the revenue shortfall through adjustments involving advertising reserves, a mechanism associated with the company’s auction pricing system.
Regulators contend that these communications demonstrate how Amazon used its pricing controls to pursue financial targets rather than allowing advertising charges to be determined solely by competitive bidding.
The lawsuit focuses in part on Amazon’s representations that advertisers participated in second-price auctions, a system in which winning bidders generally pay an amount based on the next-highest competing bid rather than their own maximum offer.
According to the FTC’s original August complaint, Amazon introduced undisclosed pricing mechanisms that could increase the amount advertisers paid beyond the price produced by the advertised auction process.
Advertisers Allegedly Given Misleading Explanations
The newly disclosed documents also describe instances in which advertisers questioned unexpected increases in their advertising costs.
Read more: Investors Take Legal Action Against Amazon Over Anticompetitive Behavior
According to the FTC, Amazon representatives attributed higher charges to increased competition, even when the company’s undisclosed pricing adjustments were allegedly responsible.
In one case cited by regulators, an advertiser specifically asked whether Amazon had changed its second-price auction system or whether a technical problem could explain the rising costs.
An Amazon account manager responded that the auction structure had not changed and attributed the higher cost per click to a more competitive marketplace, according to the complaint.
The FTC alleges that such explanations concealed material information about the company’s pricing practices and prevented advertisers from understanding how their advertising expenses were calculated.
Amazon Disputes Regulators’ Claims
Amazon has rejected the FTC’s broader allegations, arguing that regulators misunderstand the operation of its advertising auctions.
In its published response to the lawsuit, the company said its pricing system considers both the relevance of advertisements and the amounts advertisers are willing to bid.
Amazon maintains that advertisers never pay more than their maximum bids and that reserve prices are a legitimate mechanism for determining the value of advertising placements.
The company also disputes claims of financial harm, saying that inflation-adjusted average costs per click for Sponsored Products advertisements remained broadly unchanged between 2019 and 2024, while advertising conversion rates improved.
Amazon has argued that its system delivers better outcomes by prioritizing advertisements likely to be relevant to shoppers rather than automatically awarding placements to the highest bidders.
Those assertions stand in contrast to the FTC’s allegations that undisclosed pricing adjustments undermined the auction process and caused advertisers to pay more than they otherwise would have.
Legal Fight Over Advertising Practices Continues
The lawsuit involves a coalition of 22 state attorneys general, including those from California, New York, Florida, Washington and Pennsylvania.
The case centers on whether Amazon misrepresented the way advertising prices were determined and whether its undisclosed pricing practices violated consumer protection laws.
For advertisers, the dispute raises questions about transparency in digital advertising markets, particularly when the platform selling advertising space also controls the mechanisms used to determine its price.
The newly disclosed allegations add detail to regulators’ case but have not been established as findings of wrongdoing by a court.
Source: FTC
