Amazon rigged ad auctions to make advertisers pay more, FTC says
Amazon’s ad auctions weren’t quite as advertised.
Amazon. By Cybernews and Alex Shuper/Unsplash
- The FTC and 22 states accuse Amazon of secretly raising prices in online ad auctions.
- The lawsuit says Amazon overcharged 1.2 million advertisers since 2019.
- Officials allege Amazon often charged winning bidders their full bid while claiming to use second-price auctions.
- Amazon denies wrongdoing and says it plans to defend itself in court.
Key Takeaways by nexos.ai, reviewed by Cybernews staff.
The Federal Trade Commission (FTC) and 22 US statesn have accused Amazon of engaging in deceptive and unfair practices, secretly driving up prices for advertisers in its online search advertising auctions.
According to the 181-page indictment, Amazon has secretly and systematically overcharged 1.2 million advertising customers by manipulating the auctions that it uses to set the price of ads on its platform since 2019.
In these auctions, advertisers make a bid to place sponsored products ads, sponsored brands ads, or display ads when a customer searches for a product using a specific keyword. The prospective advertiser with the highest bid wins the auction.
Amazon claims to use a “second price” auction, meaning that the highest bidder would pay only one cent more than the runner-up, even if the difference between those bids was more than one cent. As a result, bidders are inclined to bid higher, because they always pay only one cent more than the second-highest bid.
However, in practice, Amazon has charged its sponsored products advertisers their own winning bid close to 80% of the time and has effectively converted its nominally “second price” auction into a first price auction. However, Amazon actively concealed these practices from advertisers to prevent them from lowering their bids.
“Amazon represents, and advertisers believe, that competitive auctions set the prices for advertising on its leading e-commerce website. But, in reality, Amazon overrides and replaces the actual auction results with higher prices set by Amazon to increase its profits,” the court document says.
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According to the complaint, Amazon did this because it was unhappy about how much revenue its advertising auctions were generating.
The plaintiffs claim that Amazon saved at least $20 billion from its unwitting advertising customers, which includes over 500,000 small- and medium-sized businesses that participated in the advertisement auctions on Amazon.com and its mobile app.
The FTC and 22 US states are suing Amazon to put a stop to these alleged unfair business practices. They’re also asking for damages.
In response, Amazon says it did nothing wrong and is looking forward to making its case in court.
“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. On top of everyday low prices at Amazon, customers saved over $230 a year on average last year on essentials and other products through deals, coupons, and our Subscribe & Save reorder program,” the company states.
