NC attorney general sues Amazon, alleging $20 billion ad-pricing scheme
RALEIGH, NC (WWAY) — North Carolina Attorney General Jeff Jackson sued Amazon on Monday, alleging the company secretly manipulated its advertising auction system to overcharge more than 1.2 million advertisers by over $20 billion since 2019, costs the state says were ultimately passed on to consumers through higher prices.
The lawsuit alleges Amazon rigged what it long described to sellers as a “second-price auction” system, in which winning bidders were supposed to pay only slightly more than the second-highest bid. According to the suit, Amazon began secretly inserting a higher “shill” bid in place of the actual second-highest bid starting in 2019, allowing the company to charge winning advertisers more than the auction’s stated rules allowed.
“Amazon secretly rigged its bidding system to charge businesses more, and customers paid the price,” Jackson said in a statement announcing the suit. “We believe Amazon manipulated its ad auctions to inflate what sellers had to pay, adding billions of dollars in costs that ultimately get passed on to customers with higher prices. We’re taking Amazon to court to stop it.”
In an interview with WWAY, Jackson explained the mechanics of the alleged scheme using a simplified example: if one business bid $1 for a sponsored product placement and another bid 50 cents, the winning bid under a true second-price auction should have been 51 cents. Instead, Jackson said, Amazon secretly raised the second bid, “gaining them a few cents on an enormous number of transactions over time,” which he said added up to roughly $20 billion.
Jackson said his office uncovered the alleged scheme through a joint investigation with the Federal Trade Commission that involved reviewing a large volume of internal data, since Amazon’s pricing algorithms function as a “black box” that individual businesses would have no way to detect on their own. He said internal company documents show Amazon raised the hidden charges gradually and concealed them from advertisers, even after businesses began asking questions.
The lawsuit alleges Amazon tested how much it could raise the hidden charges without advertisers noticing, then increased those charges further once the tests showed no change in advertiser behavior. Amazon also allegedly phased in some price increases gradually after abrupt hikes drew complaints.
Jackson said the ad costs were especially likely to affect prices for goods in low-margin categories, including over-the-counter medication and groceries. “We do believe those prices ended up filtering down to the consumers,” he said, adding that the alleged scheme is believed to have affected thousands of North Carolina businesses.
Amazon generates more than $68 billion in annual revenue from advertising, according to the lawsuit.
Jackson is asking the court to bar Amazon from continuing the alleged practice, impose financial penalties, and require the company to refund excess payments to advertisers.
North Carolina is joined in the suit by the FTC and attorneys general from Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington.
Jackson noted the suit follows other recent actions from his office targeting alleged price collusion in the beef, chicken, pork, egg and apartment rental industries. “You gotta keep your guard up,” he said. “I know that we try to interact with people in good faith, but when you see something that feels wrong, maybe there’s something underlying… or maybe there’s something more serious than that.”
