NJ joins feds in lawsuit targeting Amazon over ad pricing

New Jersey, 21 other states, and the Federal Trade Commission sued Amazon Monday, alleging the e-commerce giant had for years overcharged businesses for product advertisements placed in search results on its storefront.

Amazon rigged auctions it used to set prices for advertisement space on America’s largest online retailer, overcharging more than 500,000 businesses for more than $20 billion, the suit alleges.

“For years, Amazon has been misrepresenting how it sets the prices to advertise on the most coveted real estate on its website. It promised competitive auctions to set prices and then quietly replaced those results with inflated prices designed to pad its own profits,” New Jersey Attorney General Jen Davenport said in a statement.

Amazon in a statement said regulators had drawn their case from a small number of misleading emails and deprecated instructional videos and guides that it said did not fully explain how its ad sales worked.

“The FTC cherry-picked a small number of materials, such as a few online educational videos and training content that contained older or simplified examples about how our auctions are run, which were missed when we audited our materials as part of that initial update,” the company said in a statement posted to its website.

Federal Trade Commission Chairman Andrew N. Ferguson said in a statement that the impact of the claims in the lawsuit are “staggering.”

“Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers. The FTC under President Trump won’t allow this deception to continue,” Ferguson said.

The lawsuit alleges that Amazon had misrepresented pricing in the second-price auctions it purported to use to sell ad space. In second-price auctions, the winning bidder pays the smallest amount more than the runner-up, rather than their own bid.

But in 2019 the company began adding an undisclosed surcharge to auction prices and also used invented bidders to artificially inflate prices, the lawsuit alleges, citing internal documents and an Amazon senior scientist.

Amazon did not appear to deny using surcharges or invented bidders to boost auction prices but said it did not select winners based on the highest bid.

“The mean winning advertiser’s bid is typically about the 128th bid by amount. This means the winning advertisers’ cost is almost always lower than if we had selected ads on bid alone,” it said in the statement.