New York Attorney General Letitia James has joined the Federal Trade Commission and attorneys general from 21 other states in suing Amazon, alleging the company manipulated its advertising auctions to overcharge more than 1.2 million advertisers by more than $20 billion.
The lawsuit, announced Aug. 31, alleges Amazon secretly altered the system used to determine advertising prices on its e-commerce platform beginning in 2018. Hundreds of thousands of small and medium-sized businesses were among those allegedly overcharged.
Amazon has represented its advertising system as a “second price” auction, according to James’ office. Under that system, the winning advertiser is supposed to pay only the minimum amount necessary to beat the second-highest bid.
The lawsuit alleges Amazon instead began inserting artificial second-place bids after auctions closed, driving up the amount winning advertisers were required to pay.
James and the coalition also allege Amazon prevented advertisers from seeing auction data that could have revealed how prices were being determined.
“Businesses depend on Amazon to reach their customers, and they deserve fair prices for ads,” James said. “Consumers across the country are likely paying more for everything from groceries to electronics because Amazon has wrongfully inflated its ad prices.”
Investigators allege Amazon raised advertising prices even further during major shopping periods such as Black Friday and Prime Day.
According to James’ office, higher advertising costs affected businesses selling a wide range of products, including food, groceries and pharmacy items. The coalition alleges those increased costs likely contributed to higher prices for consumers.
The lawsuit also cites internal Amazon documents that the coalition says show the company understood advertisers were bidding under the belief that its second-price auctions operated as represented.
According to the complaint, a 2023 internal report by an Amazon economist indicated advertisers would likely submit lower bids if they knew they were not participating in a genuine second-price auction.
The coalition alleges Amazon’s practices violated federal and state consumer protection laws, including the Federal Trade Commission Act and New York’s FAIR Business Practices Act.
James, the FTC and the participating states are seeking a court order barring Amazon from continuing the alleged practices, along with financial penalties, restitution and other damages.
Attorneys general from 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 joined New York in filing the lawsuit.
