U.S. FTC Sues Amazon.com, Inc. for Allegedly Inflating Winning Ad Bids; Amazon Calls It a Misunderstanding

[Financial News] The U.S. Federal Trade Commission (FTC) has filed a lawsuit against Amazon.com, Inc., the world's largest e-commerce company, accusing it of improperly taking advertising fee revenue.
On the 31st local time, the FTC said, "Amazon inflated advertising fees by using fake 'shill bids' in its auction-based ad sales," and added that it had filed a consumer protection lawsuit together with attorneys general from 22 states, including California, New York, and Washington State.
According to the FTC, Amazon has publicly said that it uses the industry-standard second-price auction method for bids on ads shown at the top of its shopping search results. Under this system, the winning bidder pays only one cent more than the second-highest bid, rather than the highest amount it submitted.
However, the FTC said its investigation found that Amazon internally introduced a mechanism it calls a "dynamic reserve price" in 2019 without prior notice, artificially inflating winning bids. As a result, advertisers ended up paying the full highest amount they had bid in 80% of cases.
The FTC also stressed that an Amazon advertising executive admitted to creating fake second-place prices through such shill bidding. It further revealed that at a 2024 meeting between senior executives and the company's chief digital economist, the practice was described as "a clever and opaque way to charge the highest price" and "an incredibly effective way to drive revenue."
Andrew Ferguson, chair of the FTC, criticized the company, saying, "The shock is enormous when the world's largest online retailer engages in unfair and deceptive conduct," and added, "The higher ad costs were passed directly on to American consumers."
In response, Amazon said, "The FTC fundamentally misunderstands the structure of our ad auctions and the behavior of advertisers." The company said, "Our ad auction model prioritizes not only bid prices but also shoppers' search terms and relevance," and argued that by giving priority to highly relevant ads, advertisers actually saved on ad costs. It added, "In no case does an advertiser pay more than the highest bid it submitted," and said it would actively fight the lawsuit.
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