Attorney General James Sues Amazon for Fraudulently Overcharging Advertisers More Than $20 Billion

NEW YORK – New York Attorney General Letitia James today joined a bipartisan coalition of 21 other states and the Federal Trade Commission (FTC) in suing Amazon for secretly overcharging its advertising customers more than $20 billion by manipulating the system that it uses to set prices for ads on its e-commerce website. Amazon claims that its ad prices are set by “second price” auctions in which the winning bid only pays the minimum amount needed to beat the second-highest bid. However, in 2018, Amazon began manipulating these auctions by submitting fake second-place bids to charge advertisers more than they should have been paying. As a result of Amazon’s scheme, more than 1.2 million advertisers, including hundreds of thousands of small and medium-sized businesses, were overcharged more than $20 billion. The lawsuit alleges that Amazon has violated numerous federal and state laws with this scheme, including New York’s FAIR Business Practices Act, advanced by Attorney General James, which protects against deceptive, abusive, and unfair business acts. Attorney General James and the coalition are seeking a court order to stop Amazon’s illegal practices and recover financial penalties, restitution, and other damages.

“Businesses depend on Amazon to reach their customers, and they deserve fair prices for ads,” said Attorney General James. “Consumers across the country are likely paying more for everything from groceries to electronics because Amazon has wrongfully inflated its ad prices. Deceptive practices like this hurt consumers and small businesses, and we are taking Amazon to court to get justice for those who were harmed.”

Since 2012, Amazon has sold ads on its website for businesses to advertise their products and brands. Prices for Amazon’s ads are set by an auction process in which potential advertisers submit blind bids and are ranked by a combination of their bid and their ad’s relevance to the shopper’s search. To ensure fair prices, Amazon has consistently told advertisers that the winning bidders are charged only the minimum amount necessary to beat the second-highest bid. As Amazon’s marketing materials claim, auction winners pay just “one penny more than the next highest bid.”

An investigation by Attorney General James and the coalition revealed that this second price auction process is a sham. Amazon submits a higher second-place bid after the auction closes to inflate the price that the winning bidder must pay. Amazon prevents advertisers from seeing auction data in order to keep the results hidden and manipulate prices without advertisers’ knowledge. The opaque nature of the auction process means that advertisers have no way to know whether the price they are charged is actually the minimum amount needed to beat the second-place bid or instead an inflated amount set by Amazon. As a result, Amazon has been able to significantly overcharge advertisers since beginning this scheme in 2018.

Attorney General James and the coalition found that Amazon secretly raises ad prices even higher on special shopping days such as Black Friday or Prime Day. The company’s fraudulent bidding scheme increases advertising costs for a wide range of products, including essentials like food, groceries, and pharmacy products, which likely leads to higher prices for consumers.

The coalition alleges that Amazon has spent years intentionally misleading its advertising customers to hide its deceptive scheme and convince advertisers that the auctions are genuine. Internal documents from Amazon reveal that the company takes advantage of the fact that advertisers believe the auctions are fair and therefore bid higher because they assume they will not have to pay the full price of their bid if they win. In a 2023 internal report, an Amazon economist noted that advertisers would likely submit lower bids if they knew they were not actually competing in a real second price auction.

Attorney General James and the coalition allege that Amazon’s scheme violates federal and state consumer protection laws, including violations of the FTC Act banning unfair and deceptive business practices and false advertising. The lawsuit seeks a court order barring Amazon from continuing this illegal scheme and requiring the company to pay penalties, restitution, and other damages to the states and federal government.

Joining Attorney General James in filing this lawsuit are FTC and the attorneys general of Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont, and Washington.

For New York, this matter was handled by Assistant Attorney General Christopher L. McCall under the supervision of Bureau Chief Jane Azia and Deputy Bureau Chief Laura Levine of the Bureau of Consumer Frauds and Protection. The Bureau of Consumer Frauds and Protection is a part of the Division for Economic Justice, which is led by Chief Deputy Attorney General Chris D’Angelo and is overseen by First Deputy Attorney General Meghan Faux.