FTC sues Amazon, alleging it overcharged advertisers | CNN Business

The Federal Trade Commission and 22 states on Monday accused retail giant Amazon of deceiving businesses by overcharging prices to advertise on its massive retail platform, pocketing billions for the company.

The Federal Trade Commission and 22 states on Monday accused retail giant Amazon of deceiving businesses by overcharging prices to advertise on its massive retail platform, pocketing billions for the company.

The lawsuit claimed 1.2 million advertisers paid more than they realized because Amazon raised the minimum price to place ads without them knowing.

It’s the third major lawsuit that the federal agency has filed against Amazon, which became the third-biggest ad platform in the United States in 2018.

The Wall Street Journal first reported the lawsuit.

Amazon sets its advertising prices using an auction system, in which companies bid on different types of ads and where they appear. In practice, the winning advertiser is only supposed to pay a cent more than the second-place bid. But the lawsuit claims that “in 2018, Amazon began secretly manipulating its auction results to increase its ad prices.”

In actions such as an alleged hidden surcharge and placing artificial bids, Amazon “likely illegally extracted over 20 billion dollars” from 1.2 million customers, almost half of whom were small or medium-sized businesses. The FTC claimed these higher costs were eventually passed down to Amazon shoppers.

In a 3,000-word statement to CNN, Amazon said it “strongly disagrees” with the “misguided” lawsuit.

“The FTC’s claim fundamentally misunderstands how advertisers operate,” Amazon said. “Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics. Even accepting the FTC’s flawed premise that advertisers do not adjust bids, we estimate they saved over $8 billion from 2021 to 2025 as a result of Amazon prioritizing ad relevancy over selecting ads on bid price alone.”

Amazon claims it shared its data with the FTC “on multiple occasions,” but “they have shown little interest in engaging with the facts and appear more focused on trying to secure some sort of monetary victory.”

The company also claims that the costs it charged for digital ads remained flat when adjusted for inflation, even when conversion rates grew.

CNN has reached out to the FTC for comment.

Auction-based ad buying is an established practice in the digital advertising world and “relies entirely on platforms strictly adhering to well-established rules,” University of Notre Dame marketing professor and strategist Vamsi Kanuri wrote in a note to CNN.

But even if Amazon hadn’t been transparent with advertisers, it’s still a platform that generates $927.82 billion in worldwide retail ecommerce sales this year, Emarketer principal analyst Zak Stambor said.

“Advertisers face a tough challenge because Amazon is incredibly hard to walk away from,” Stambor said.

Amazon’s run-ins with the FTC

Just last year, Amazon settled for a historic $2.5 billion with the FTC over allegations that the company tricked consumers into signing up for its Prime subscription service and then made it hard to cancel. At the time, the FTC said it was the largest civil penalty in a case involving an FTC rule violation.

Amazon had agreed to pay a $1 billion civil penalty and provide $1.5 billion in refunds to an estimated 35 million customers who were “harmed by their deceptive Prime enrollment practices,” the agency said. That case was first filed in 2023 under the Biden administration.

And in 2023, Amazon agreed to pay more $30 million in FTC claims over user privacy violations. Its Alexa voice assistant and Ring doorbell cameras were accused of keeping users’ videos, voice recordings and geolocation information for years at a time.

Amazon denied wrongdoing in both cases.

CNN’s Jordan Valinsky and Clare Duffy contributed to this report.