Amazon Faces Federal Probe Over Alleged Price Inflation in Advertising Auctions

Amazon.com (NASDAQ:AMZN) has been dealing with a significant technical test after a federal complaint was filed against the company's advertising auction pricing practices. The complaint, which was joined by state attorneys general from over twenty states, alleges that Amazon systematically inflated prices in its auctions over several years.

The complaint specifically targets how Amazon's automated auctions operate on a second-price basis, where the winning bidder pays marginally more than the next highest bid. However, regulators claim that in practice, a large share of winning bidders were charged their own bid, and hidden reserve pricing was introduced without notice to advertisers.

Amazon has disputed the allegations, arguing that regulators mischaracterized how the auctions function and selectively drew from examined material. The company pointed out improvements in advertising quality over the period and cost-per-click pricing that remained broadly flat once inflation is accounted for.