US prosecutors sue Amazon for "manipulating" its system of collecting from advertisers

A coalition of 21 U.S. states and the Federal Trade Commission (FTC) has filed a lawsuit against Amazon, accusing the company of secretly manipulating its ad pricing system to charge advertisers more than they should have paid. The legal action alleges that Amazon systematically altered how it sets prices for ads on its platform, potentially extracting over $20 billion from more than 1.2 million clients, including small and medium-sized businesses. According to the complaint, these practices likely led to higher product prices for consumers. The lawsuit was announced on Monday and centers around internal documents that describe so-called “hidden fees” used by Amazon. These documents suggest that the company’s method of determining ad costs involved submitting false second-place bids during auctions, allowing Amazon to inflate the prices advertisers were required to pay. The FTC and the states argue that this manipulation violated federal and state consumer protection laws, including provisions that prohibit unfair and deceptive business practices and false advertising. According to the complaint, Amazon claims that ad prices are set through an auction process where potential advertisers submit anonymous bids based on their willingness to pay and the relevance of their offerings. Once a winning bid is selected, the advertiser would typically pay just one cent more than the next highest bid. However, the investigation revealed that starting in 2018, Amazon allegedly began altering these auctions by introducing fake second-place bids. This tactic allowed the company to charge advertisers significantly more than the actual market rate. The allegations include instances where Amazon increased ad prices during special shopping days such as Black Friday and Prime Day, an annual online shopping event created by the company itself. These periods saw particularly aggressive price hikes, according to the coalition of states and the FTC. The lawsuit highlights that these actions occurred despite Amazon’s public assurances that its ad pricing mechanism operated transparently and fairly. New York Attorney General Letitia James stated in a press release that the investigation uncovered evidence suggesting Amazon’s manipulation of ad pricing had a direct impact on consumers. She noted that the increased cost of advertising could lead to higher product prices for shoppers. James emphasized that the practice of artificially inflating ad costs undermines fair competition and harms both businesses and consumers. The FTC confirmed the lawsuit after initially reporting the story, with The Wall Street Journal revealing that 22 states had joined the effort. The agency and the states argue that Amazon’s actions constitute a violation of the Federal Trade Commission Act, which prohibits deceptive and unfair trade practices. They also claim that the company engaged in misleading advertising by presenting its ad pricing model as competitive and transparent while secretly manipulating the system to extract additional revenue. Amazon has not yet publicly responded to the allegations, though the company has previously denied similar claims in the past. Legal experts suggest that the case could take years to resolve, given the complexity of digital advertising systems and the volume of data involved. If found guilty, Amazon could face substantial fines and be forced to change its ad pricing mechanisms. The lawsuit comes amid growing scrutiny of large technology companies regarding their business practices, particularly concerning how they handle advertising and data privacy. Similar investigations have been launched against other major platforms, signaling a broader regulatory push to ensure transparency and fairness in digital markets. The outcome of this case could set a precedent for future enforcement actions against tech firms.