Report from the Wall Street Journal
In Brief – The Federal Trade Commission and 22 state attorneys general have sued Amazon alleging that the e-commerce giant secretly manipulated advertising auctions on its platform to inflate the prices businesses paid for ads by over $20 billion. While Amazon’s ad auctions were described as a second-price auction charging the winner one cent above the second-highest bid, the complaint, filed in federal court in Seattle, alleges that Amazon, which knew all the competing bids, began changing its auction process in 2018 by inserting its own undisclosed “soft reserve” bid in some auctions. The secret Amazon bid boosted the price paid by the winner above the second-highest bid made by a competing seller, raising the revenue of Amazon. The FTC says Amazon sought to keep the strategy hidden and tracked the resulting “surcharge”, allegedly intervening to set prices in 70% to 80% of auctions in recent years and increasing pay-per-click costs by 50% on major shopping days. The regulators argue that higher ad costs squeezed third-party sellers’ margins and contributed to higher consumer prices. Amazon denied wrongdoing, saying its auctions were properly described, used real-time minimum values reflecting an ad’s worth, and that its advertising practices did not harm consumers.
Context – The shadow ads bidding complaint is the consumer-protection agency’s third major case against Amazon. Last year, Amazon paid $2.5 billion to settle an FTC lawsuit alleging that the company tricked people into signing up for Prime and made cancelling subscriptions overly difficult. Federal District Judge John Chun, who oversaw that case, is also handling a set of far more consequential antitrust lawsuits alleging that Amazon pressured sellers on its dominant online marketplace to raise prices elsewhere on the internet to match or exceed their prices on Amazon in order to protect Amazon fees, which often exceed 50%, from competition on smaller platforms with lower fees. Amazon advertising is a major component of those fees. The FTC’s antitrust case is scheduled for trial in Seattle next March.