Ads generate a lot of revenue for a lot of online websites and services. If you have a business that gets millions of eyeballs on your page every day, it makes sense to place ads. Amazon clearly has those eyes, which is why advertising on the website is a popular choice. But now, Amazon is being hit with an FTC lawsuit for allegedly overcharging for ads.
Amazon accused of overcharging for ads
If you’re not an advertiser, here’s how Amazon’s advertising works. Amazon uses a “second price” auction for ads. This means that advertisers participate in a blind bidding war for ad space and each company states the maximum they’re willing to pay each time a customer clicks on the ad.
According to Amazon’s second-price auction, the winning bid only needs to pay $0.01 more than the second-highest bid. For example, if Company A set its max bid at $5, and Company B set its max bid at $10, Company B does not need to pay $10 per click. Instead, it only needs to pay $5.01.
However, the FTC is accusing Amazon of overcharging on ads. So much so that the FTC and 22 state attorneys general are suing the company for using a “secret ad surcharge” to drive up prices. Like we said before, the winning bid only needs to pay $0.01 more than the second-highest bid.
But the FTC is alleging that Amazon replaces that price with a new price designed to maximize its profits. The complaint also cites an alleged internal quote by Amazon’s Senior Vice President in charge of Amazon ads as explaining, “the second price isn’t set by an actual bidder, but rather by” Amazon in the form of a “proxy 2nd price that we calculate.”
Amazon’s response
To no one’s surprise, Amazon is denying these allegations. In a lengthy post on its website, Amazon has refuted the FTC’s claims. Instead, the company claims from 2019 to 2024, the average winning bid fell by 50%. “As our advanced machine learning-based relevance models more heavily weighted relevance versus the highest bid, we saw winning bids drop significantly.”
The company acknowledged that this is good for advertisers and shoppers. But at the same time, it also meant that premium placements were being undervalued. They are also accusing the FTC of cherry-picking a small number of materials that oversimplify how their auctions are run.
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