The Federal Trade Commission and a coalition of 22 states are suing Amazon for “secretly and systematically” overcharging advertisers on its platform, ultimately bringing in more than $20 billion over seven years. The complaint, filed in a Washington federal court Monday, accuses Amazon of manipulating the minimum price that advertisers had to pay to place ads on the e-commerce giant’s website. Amazon allegedly did not properly disclose the pricing of the “sponsored” ad space, which users typically see at the top of a page when searching for products.“Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers,” FTC Chairman Andrew Ferguson said in a press release.Monday’s lawsuit is the third time the FTC has brought major legal action against Amazon. The Federal Trade Commission is accusing Amazon of running deceptive practices when it comes to selling ‘sponsored’ ad space on the online retailer’s website (Reuters)Last year, the FTC sued Amazon for duping customers into enrolling in Prime and then making it difficult to cancel. In 2023, the FTC sued Amazon for operating a monopoly.This time, the lawsuit focuses on Amazon’s auction prices for three different advertising spaces: Sponsored Products, Sponsored Brands and Sponsored Display.According to the lawsuit, Amazon allegedly told advertisers it ran a “second price” auction, in which potential advertisers could bid for ad space, and the winner would pay only “one cent” more than the next highest bidder. The model attracts more bidders while allowing advertisers to pay less. But in practice, Amazon allegedly replaced the price determined by the runner-up bidder with a higher price, known as a “soft reserve,” which prosecutors say was “designed to maximize Amazon’s profits and decrease the cost efficiency of its advertisers’ campaigns.”Amazon accused the FTC of filing a ‘misguided’ lawsuit against it and said the complaint ‘fundamentally misunderstands how advertisers operate’ (Reuters)In a blog post Monday, Amazon disputed the FTC’s allegations, calling the lawsuit “misguided” and saying the agency “fundamentally misunderstands how advertisers operate.”“The FTC wants the public to believe this case is about higher prices for consumers. It is not,” Amazon said in its statement.“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 over $8 billion from 2021 to 2025 as a result of Amazon prioritizing ad relevancy over selecting ads on bid price alone,” Amazon said.Amazon has the third-largest digital advertising business, generating $19 billion in ad revenue in the second quarter of the year alone. The company boasted that shoppers who clicked a “Sponsored” prompt convert sales 48 percent more often and spend 21 percent more on average than those who don’t, in its Q2 filing. The FTC has cracked down on online advertising giants in more recent years. Last year, the FTC opened an investigation and filed a complaint against Google for its search advertising practices.