The Federal Trade Commission (FTC) and 22 states have filed a lawsuit against Amazon, alleging that the company engaged in deceptive and unfair practices that inflated prices in its online advertising auctions. The complaint claims that for over seven years, Amazon has covertly increased the costs for more than one million brands and sellers advertising on its platform, extracting tens of billions of dollars from unsuspecting customers.

FTC Chairman Andrew N. Ferguson emphasized the significant impact of Amazon's conduct, stating that millions of advertising customers were misled into paying higher prices, which ultimately affected American consumers. The lawsuit alleges that Amazon imposed undisclosed surcharges on its advertising customers, including over 500,000 small- and medium-sized businesses participating in auctions for advertising placements.

The complaint details how Amazon misrepresented its auction system as a “second price” auction, where the winner pays just above the next highest bid. However, it is alleged that Amazon charged advertisers their winning bid nearly 80% of the time, effectively converting the auction into a first-price auction. This misrepresentation has led to advertisers paying significantly more than they should have.

Amazon's internal documents reveal that the company was aware of the negative implications of revealing these surcharges, which they referred to as a “soft reserve price.” The complaint states that Amazon's changes to its auction rules were made without notice, resulting in advertisers paying inflated prices, especially during high-volume shopping days.

The lawsuit highlights that Amazon's deceptive practices have generated substantial revenue for the company, with executives acknowledging that their pricing strategy was an effective way to drive revenue. The FTC's complaint aims to hold Amazon accountable for its actions and restore trust among advertisers.