Amazon inflated ad prices, overcharged businesses $20 billion, lawsuit alleges

New York State has joined 21 other states and the Federal Trade Commission in a lawsuit against e-commerce juggernaut Amazon, alleging the company overcharged advertisers more than $20 billion.

The state’s Attorney General Letitia James, along with the coalition of other states’ attorneys general, said Monday Amazon has been “secretly overcharging its advertising customers” since 2018 by manipulating the system it uses to set prices for ad space on its website, according to an announcement from the agency. More than 1.2 million advertisers and businesses were overcharged by the company’s practices, according to the announcement.

“Businesses depend on Amazon to reach their customers, and they deserve fair prices for ads,” James said in a statement.

While the suit alleges that Amazon overcharged advertisers and smaller companies, James said the increased prices paid by businesses impacted consumers too.

Officials with James’ office said around 500,000 small- to medium-sized businesses were impacted by Amazon’s overcharging operation.

“Consumers across the country are likely paying more for everything from groceries to electronics because Amazon has wrongfully inflated its ad prices,” James said. “Deceptive practices like this hurt consumers and small businesses, and we are taking Amazon to court to get justice for those who were harmed.”

The suit, filed in the United States District Court of the Western District of Washington, alleges the online retail giant has been manipulating the auction process it uses to set the prices of ads for nearly eight years.

“The FTC claims advertisers were harmed because they didn’t understand how our auction worked and therefore overpaid,” Amazon said in a company response to the lawsuit on its Amazon News page. 

Amazon, the attorney general’s office said, sets its ad prices through an auction where potential advertisers submit blind bids that are “ranked by a combination of their bid and their ad’s relevance to the shopper’s search.”

The company has “consistently” told winning bidders the price they pay is only 1 cent higher than the second-place bidder to keep pricing fair, according to the announcement.

"The reality is that from 2019 to 2024, the average winning bid for Sponsored Products search ads fell 50%, demonstrating that highly relevant ads were increasingly winning placements with lower bids," Amazon said. "There is also no harm to consumers."

But James’ office, along with other states, claims this process was deceptive and that Amazon secretly added a false second-place bid price to artificially drive up the cost that winning advertisers pay for ads.

Other state signatories to the lawsuit include attorneys general in New Jersey, Pennsylvania, California and Washington.

FTC officials could not immediately be reached for comment.