Kris Mayes Sues Amazon for 'Secret' Ad Surcharge Scheme

Arizona Attorney General (AG) Kris Mayes joined a bipartisan coalition of 21 states and the Federal Trade Commission (FTC) in a lawsuit against online retailing giant Amazon for its apparent use of "secret" advertising surcharges.

The Allegation

On Monday, the FTC filed a complaint alleging that Amazon covertly raised prices for over a million brands and sellers to advertise on the site over the past seven years.

Specifically, Amazon uses a bidding system in which brands and sellers compete to place Sponsored Product ads, Sponsored Brands ads, and Display Ads alongside the results that appear when a consumer searches for a product using a keyword on Amazon's store. Placements are auctioned to the highest-ranked bidder for each keyword.

The problem is that, in theory, Amazon uses a "second-price" system, meaning the winning bidder pays one cent more than the second-highest bidder. In practice, however, Amazon has charged its Sponsored Products advertisers their own winning bid in nearly 80% of cases, effectively turning the "second-price" system into a "first-price" system.

What Mayes is Saying

"Amazon has built one of the largest advertising businesses in the world on the backs of small business owners who trusted the company to play by its own rules," said AG Mayes in a press release, adding, "For years, Amazon told advertisers they were bidding in a fair, second-price auction, while secretly adding hidden surcharges that drove prices higher. Many of these increased costs were passed on to Arizonans. Companies that engage in such deceptive practices must be held accountable."

Previous Business Cases

In July, AG Mayes announced that a restraining order had successfully halted the merger of Paramount and Warner Bros., which she and 12 other attorneys general argued would significantly reduce meaningful competition in the film and streaming industries, raising prices for movies and television.

The U.S. District Court for the Northern District of California granted the suing states a temporary restraining order against the merger, preventing it from proceeding while the court considers a preliminary injunction.