Market Institute President Charles Sauer warns that the Federal Trade Commission’s latest attack on Amazon could undermine the very affordability concerns that policymakers say they want to address.
In a new piece for RealClearMarkets, “Trump’s FTC Places a Bull’s Eye on Affordability,” Sauer argues that FTC Chair Andrew Ferguson’s lawsuit targeting Amazon’s advertising auctions risks making online advertising less effective and, ultimately, raising costs for consumers.
The FTC recently sued Amazon over the way it prices sponsored products, sponsored brands, and display advertisements. The agency alleges that Amazon manipulated its second-price advertising auctions through what it characterizes as an “invented auction participant” designed to increase what winning advertisers paid.
But Sauer argues that this characterization misses how Amazon’s advertising marketplace actually operates.
Amazon uses what it calls “soft” and “hard” reserve prices to account for the value of premium advertising placements. These mechanisms help balance the amount an advertiser bids with the relevance and value of a particular placement. Importantly, Sauer notes, advertisers are never charged more than they actually bid.
As he explains:
“Thus, advertisers never pay more than they are willing to, and they may pay less. Yet, this is the system FTC Chair Ferguson calls unfair to Amazon’s advertisers.”
The economic evidence also raises questions about the FTC’s theory of harm.
Sauer points out that the inflation-adjusted average cost per click for an Amazon sponsored-product search was essentially unchanged between 2019 and 2024. Meanwhile, conversion rates—the percentage of consumers who click an advertisement and ultimately purchase the product—increased 24 percent between 2022 and 2024.
In other words, advertisers were getting more value from their advertising dollars, not less.
Sauer writes:
“So not only were advertisers not being gouged by Amazon, they were actually getting a greater return on their ads.”
That matters beyond Amazon’s advertisers. More effective advertising makes it easier for businesses to reach consumers who are actually interested in their products. Disrupting that system could make advertising less efficient, forcing businesses to spend more to generate the same sales.
Those additional costs do not disappear. They can ultimately be reflected in higher prices.
As Sauer warns:
“It could also reduce the conversion rate, forcing advertisers to spend more money to get the same results—thus increasing prices.”
The lawsuit is especially difficult to square with Washington’s growing focus on affordability. Instead of attacking business practices that appear to be producing value for advertisers and consumers, policymakers should focus on government policies that directly increase the cost of goods and services.
Sauer concludes:
“Rather than pursuing baseless lawsuits against Amazon, the FTC should work to address the affordability crisis. One way to do so is to continue to identify laws and regulations that raise prices and should therefore be repealed.”
At a time when Americans remain intensely focused on the cost of living, regulators should be looking for ways to remove government-created barriers to lower prices—not pursuing cases that could make efficient markets more expensive.
Read Charles Sauer’s full article at RealClearMarkets.
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