AMZN Accused of Inflating Ad Prices by $20B, FTC & 22 Statesac Sue

**SPEAKER_1** (0:01)
We're back on Morning Trade Live. Let's focus on the one-year chart for Amazon. The stock is down around 10% since hitting its all-time high on August the 4th. We're coming off today. This obviously has to do with some of the new challenges it's facing. So joining us now for a closer look at the details is Marley Kayden. And obviously we're watching the FTC alongside bipartisan coalition of state attorneys, obviously taking aim here. Let's walk us through exactly what we know and the reaction we're seeing this morning, Marley.

**Marley Kayden** (0:32)
Absolutely. We're seeing a reaction to the downside for Amazon. Similar to the reaction we saw yesterday near the close when this information first broke that this lawsuit would be being filed. The Wall Street Journal reported yesterday the pending filing. We now have confirmation it's been filed. We went down about 2% to close yesterday. We're down another 2% already this morning. So let's walk through what the lawsuit is alleging. The Federal Trade Commission along with 22 states filed suit against Amazon. They say the company engaged in deceptive and unfair practices that secretly inflated prices in its online search advertising auctions. The complaint says that for a period of more than 7 years, more than 1 million advertisers paid more than they realized they were paying because Amazon raised the minimum price to place ads without them knowing. As a result, the complaint then alleges that Amazon's scheme has likely extracted tens of billions of dollars from these customers. The FTC chairman says, quote, When one of the world's largest online retailers engages in unfair and deceptive conduct, the impact can be staggering. Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers. The FTC under President Trump won't allow this deception to continue. Now, Amazon sets its advertising prices using an auction system, in which companies bid on different types of ads and where they will appear. This is a common practice among a lot of the big advertisers here.
In theory, the winning advertiser is only supposed to pay one cent more than the second place bid. But the lawsuit says that in 2018, Amazon began secretly manipulating its auction results to increase those ad prices and collecting those extra dollars. In actions such as this hidden surcharge and placing those artificial bids, FTC says that Amazon likely illegally extracted what they're saying is more than $20 billion from 1.2 million customers, almost half of whom were small or medium-sized businesses. The FTC claims also that these higher costs were eventually then passed on to Amazon shoppers by the businesses. Amazon says it strongly disagrees with what it calls the misguided lawsuit, saying, quote, the FTC wants the public to believe this is a case about higher prices for consumers. It is not. Amazon's approach to pricing contradicts any suggestion of consumer harm.
We provide customers the lowest prices every day across the widest selection of products. They also go on to say that at Amazon, customers saved an over $230 a year on average last year. They also say that the FTC's claim fundamentally misunderstands how advertisers operate. They say advertisers adjust bids based on real-world performance, not descriptions of auction mechanics. Even accepting the FTC's flawed premise that advertisers do not adjust bids, we estimate they saved more than $8 billion between 2021 and 2025 as a result of Amazon prioritizing ad relevancy over selecting ads on bid price alone. Amazon continues to go on saying that it has shared its data with the FTC on multiple occasions and says, quote, the FTC has shown little interest in engaging with the facts and appear more focused on trying to secure some sort of monetary victory.
The company also said that the charge, it costs a charge for digital ads remains flat when they were adjusted for inflation even as conversion rates grew. So a very interesting case here, some nuances that I think required some explaining there in this auction based ad buying. That's an established practice in the ad world. I think if you're not in the ad world, this unfamiliar or seems perhaps like something untoward is happening. That's a common practice. But two very different sides here that don't seem to have any alignment on what the facts are, Sam.
And the acknowledgement that they're trying to quote unquote secure some sort of monetary victory from Amazon, you know, sort of sends some signs of the meta settlement that we just got. There's been a similar argument made over that lawsuit that this was sort of used as a piggy bank because they didn't want the legal overhang, so they were willing to settle and not admit wrongdoing.