Regulators claim Amazon artificially bumped floor prices during peak shopping periods, adding surcharges to merchants' ad spending
Amazon's advertising business generated $19.8 billion in revenue last quarter.
Shares of Amazon.com were falling 3% on Monday following news that the Federal Trade Commission is looking to crack down on the company's lucrative digital-advertising business.
The FTC and 22 states plan to file a lawsuit against Amazon (AMZN) alleging that the company manipulated prices paid by marketplace merchants and caused billions of dollars in harm. The Wall Street Journal first reported the news on Monday, and the FTC confirmed it in a press release.
FTC officials say Amazon has secretly inflated the minimum prices required to win ad placements, intervening in auctions to raise the price 70% to 80% of the time. Amazon officials allegedly tracked the "surcharge" earned from these policies and tried to limit outside knowledge of these practices.
"The complaint alleges that Amazon's scheme has likely extracted tens of billions of dollars from its unwitting advertising customers," the FTC said.
This artificial floor-setting reportedly pushed merchant ad costs up by as much as 50% during peak shopping events such as Prime Day, when sellers naturally expected higher costs driven by holiday competition. Amazon's strategy raised the pay-per-click ad cost by 50% on major shopping days, the FTC claimed.
According to internal documents cited by the FTC, Amazon executives said that revealing the surcharges would result in "irrevocable damage to advertiser trust" and a "downward spiral" of advertisers lowering their bids, which would result in Amazon losing revenue.
Amazon did not immediately respond to MarketWatch requests for comment.
"When one of the world's largest online retailers engages in unfair and deceptive conduct, the impact can be staggering," FTC Chairman Andrew N. Ferguson said in the official statement. "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."
Amazon's advertising business has steadily grown in recent years, becoming a high-margin profit driver and the third-largest digital ad platform behind Alphabet (GOOGL) (GOOG) and Meta Platforms (META). Last quarter, Amazon's advertising business grew 26%, reaching $19.8 billion.
This represents the FTC's third case against Amazon. Last September, Amazon paid $2.5 billion to settle allegations that it deceptively tricked consumers into Amazon Prime subscriptions and made cancelling them excessively difficult.
-Christine Ji
Comments