Amazon Sued Over Alleged Misleading Advertising Auctions
The Federal Trade Commission (FTC) and 22 state attorneys general have filed a lawsuit against Amazon, alleging that the company's advertising auctions are not second-price auctions as claimed, but rather a system where advertisers pay their own bid close to 80% of the time.
The complaint alleges that Amazon used a 'soft reserve' mechanism to charge advertisers more than their winning bid. This practice is similar to shill bidding, according to the FTC. The company allegedly used this method for Sponsored Products and Display Ads from 2018 onwards, and for Sponsored Brands from mid-2019.
According to internal Amazon documents, the 'soft reserve' was applied after the auction had already produced a winner and runner-up, and it was capped only by the winning bid itself. This means that advertisers may not have been expecting these post-hoc pricing adjustments, which carried an element of unfairness.
The FTC claims that this practice resulted in higher costs for Amazon's advertising customers, which were largely passed on to American consumers. The complaint notes that between 2020 and 2023, the rate at which advertisers paid their own bid increased from 4% to around 80%.