PA Sues Amazon, Alleges Ad Auction Scheme Hurt Shoppers

PENNSYLVANIA — Pennsylvania is among 22 states participating in a Federal Trade Commission lawsuit the Federal Trade Commission has against Amazon alleging the retail giant engaged in an advertising surcharge scheme.

Amazon's practices with its advertisers ultimately has led to higher prices for consumers, an FTC official said. Amazon has denied that claim.

The 181-page lawsuit , filed Monday, contends that Amazon has secretly and substantially increased the prices that more than one million brands and sellers - including thousands of small businesses and sellers in Pennsylvania - are required to pay to advertise on its platform.

The complaint alleges that Amazon likely has illegally obtained tens of billions of dollars from its advertising customers.

“Amazon secretly raised prices in auctions for advertisements on their website, preying on smaller businesses on tight budgets,” Pennsylvania Attorney General Dave Sunday said. “We are hopeful that this lawsuit will provide restitution and relief for businesses purchasing ads on Amazon, and in turn, keep prices down for consumers.”

The lawsuit claims that more than 500,000 small- and medium-sized businesses were impacted by Amazon imposing undisclosed surcharges on businesses that participated in auctions for advertising placements on Amazon's website and app.

Sunday said the scheme included more than 14,000 independent sellers in Pennsylvania.

Here's how the auction process works:

Prospective advertisers bid to place sponsored product ads, sponsored brands ads and display ads alongside the results that appear when someone searches for a product using a keyword on Amazon. Placements are auctioned to the highest-ranked bidder for each keyword.

Among numerous allegations in the lawsuit, Amazon is accused of overriding and replacing actual auction results with higher prices set by Amazon to increase the ad prices so as to increase Amazon’s profits.

The complaint also contends that Amazon intentionally concealed its actions from advertisers and that advertisers were substantially overcharged in the form of fees and surcharges. Those costs ultimately were passed down to shoppers in the form of higher prices.

In a lengthy release on Monday, Amazon denied any wrongdoing.

"The FTC wants the public to believe this case is about higher prices for consumers. It is not," the release stated.

"The FTC’s own complaint cites no evidence of consumer price increases, and consumers are only mentioned a handful of times in over 150 pages."

In its own release, the FTC rebutted Amazon's stance.

“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.

“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 won’t allow this deception to continue.”

In addition to Sunday, the attorneys general of Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington also are participants in the suit.