Amazon rigged billions in ad pricing, lawsuit from states and US watchdog alleges

The Amazon logo is seen at one of its offices

The US Federal Trade Commission (FTC) and a bipartisan group of 22 states has filed a lawsuit alleging Amazon secretly overcharged more than a million advertising customers by manipulating online auctions it uses to set ad prices.

The FTC and states say in their lawsuit filed Monday that the alleged scheme has likely netted the company $20bn from advertising customers since 2019.

"Amazon overrides and replaces the actual auction results with higher prices set by Amazon to increase its profits," says a complaint filed in the company's home state of Washington.

In a statement to the BBC, Amazon "strongly disagrees" with the premise that it misled advertisers and called the suit "misguided."

In addition to advertisers, the FTC, a US consumer watchdog, and the states say Amazon customers have also been harmed as extra costs are passed onto shoppers.

"Consumers are suffering, have suffered, and will continue to suffer substantial injury as a result," the complaint states, prompting swift pushback from Amazon.

"The FTC wants the public to believe this case is about higher prices for consumers. It is not," Amazon said in its statement.

The company's shares fell following the announcement of the lawsuit, closing 2.5% lower on Monday.

Many brands and sellers compete on Amazon to place Sponsored Product ads and Sponsored Brands ads when consumer search for products using keywords on Amazon's e-commerce platform.

Those placements are then auctioned off to the highest bidder.

The complaint accuses Amazon of secretly charging advertisers more in so-called "second price" auctions, whereby prospective advertisers expect to pay one cent more than the next highest bidder for each bid they win.

But in practice, the complaint alleges, Amazon has charged its Sponsored Products advertisers their own winning bid close to 80% of the time.

The lawsuit states that Amazon's methods were spurred because "it was unhappy about how much revenue its advertising auctions were generating".

Amazon responded by saying the FTC "fundamentally misunderstands how advertisers operate".