The latest

The Federal Trade Commission sued Amazon on Monday, accusing the e-commerce company of secretly increasing minimum prices in some advertising auctions after bids were submitted. The agency alleges the practice deceived advertisers, cost them more than $20 billion after its introduction in 2018 and contributed to higher consumer prices. Amazon called the lawsuit “misguided” and said the FTC’s claim “fundamentally misunderstands how advertisers operate.” The company said it looks forward to presenting its case in court.

Details

• Auction mechanics: The allegations involve auctions for Sponsored Products, Sponsored Brands and Sponsored Display advertisements shown to shoppers on Amazon’s website and mobile app. Under the standard method, the winning advertiser pays only slightly more than the second-highest bid. If the top offer is $15 and the next is $12, for example, the winner pays $12.01. Technology companies commonly use this model for advertising auctions.
• Reserve system: The FTC alleges Amazon changed some auctions by introducing what it internally called a “soft reserve.” Rather than setting the final charge just above the second-highest offer, Amazon applied a higher price after the auction had concluded. The agency says the change effectively raised the amount advertisers had to pay after their bids were already entered.
• Internal descriptions: Some Amazon employees called the charges “post-hoc pricing adjustments” and acknowledged that advertisers “may not be expecting” them, the complaint alleges. The FTC says Amazon introduced the system in a way the company believed some advertisers would not notice.
• Scale of use: Amazon did not use the revised structure in every advertising auction. In recent years, however, it intervened through the system in 70% to 80% of auctions, the FTC alleges. The company also imposed higher surcharges during the Christmas season and other peak shopping events.
• Amazon’s defence: Amazon says the changes were intended to preserve the value of premium advertising inventory after improvements making advertisements more relevant caused prices to fall. It argues that about 92% of placed advertisements are not awarded to the highest bidder and says the practice does not harm advertisers.
• Consumer impact: FTC Chairman Andrew Ferguson said the higher advertising costs generated by soft-reserve prices drove retail price increases affecting essential products, including food and groceries. Amazon rejected that account, saying its advertising practices caused no harm to consumers.

Background

Amazon operates the world’s third-largest digital advertising platform, behind Alphabet’s Google and Meta Platforms. The disputed auctions determine prices for promotions displayed while consumers search for products across Amazon’s online shopping services.

What’s next

The lawsuit moves to court, where Amazon plans to challenge the FTC’s allegations about the pricing mechanism, the claimed advertiser losses and the asserted effect on consumer prices.