According to a recent Reuters-Ipsos poll, Democrats and Republicans are tied on the question of which party voters trust more on economic issues. This follows a similar Reuters-Ipsos poll from earlier this year that put Democrats slightly ahead of Republicans on the economy. These polls are the first time in a decade that Democrats have either been tied or ahead of Republicans as the party voters trust to pursue policies that will deliver a strong economy.
The same poll that showed Democrats and Republicans tied on the economy also showed that voters preferred the Democrats’ approach to affordability by 36% to 27%. This spells trouble for the GOP in the upcoming midterms. Federal Trade Commission (FTC) Chair Andrew Ferguson is not helping the Trump Administration or the Republican Congress make the case that they are the party of affordability.
The FTC has recently sued Amazon for allegedly misleading advertisers regarding the costs of “sponsored products,” “sponsored brands,” and “display” advertisements. The placement of these ads is determined by a second-price auction. The winner of the action is only charged a small amount above the next highest bid; this can be as little as a penny. The FTC alleges that Amazon added an “invented auction participant” whose purpose was to increase the amount Amazon could charge the auction winner.
This is a distortion of how Amazon’s bidding system actually works. The appeal of online advertising is relevancy. This means an ad can be targeted to appear in response to a particular search or an individual’s past searches and purchasing history. So, Amazon put more weight on relevancy in its auctions than it did on price. The result was better for advertisers and consumers, but it undervalued the worth of premium placements on Amazon.
In order to correct this problem, Amazon developed what it called a “soft reserve price” that reflects the value of each advertising placement. Amazon also developed a “hard reserve price” that reflects the minimum bid an advertiser should make. If an advertiser’s winning bid exceeds both the hard and soft reserve, the advertiser pays the soft reserve price. If the winning bid exceeds the hard reserve price- but is less than the soft reserve price, they pay the amount of their final bid. 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.
Looking at data for the relevant period, it is hard to see how the FTC (or the 22 state Attorneys General that have joined the suit) can claim that, even if Amazon engaged in this practice, it results in higher costs for advertisers and investors. The average real (adjusted for inflation) cost-per-click of an Amazon sponsored product search was the same in 2024 as it was in 2019. From 2022 to 2024, the conversion rate (the percentage of people who click on an ad and actually buy the product) increased by 24%. So not only were advertisers not being gouged by Amazon, they were actually getting a greater return on their ads.
Thus, there is no evidence that Amazon has done anything but help its advertisers. The same is true of consumers. Amazon became the world’s largest online retailer in large part by offering the lowest prices available on the internet. The company still strives to offer consumers the lowest prices and the highest selection of products available anywhere, whether online or in brick-and-mortar stores. Far from harming Amazon’s current and potential advertisers, Amazon’s auctions are carefully tailored to ensure that no advertisers are charged more than they are willing to pay. Amazon’s use of soft and hard prices in its auctions preserves the value of its advertising space—a reasonable goal for any business.
If the FTC and the states are successful in their lawsuit, they will impede Amazon’s ability to help advertisers reach consumers who might actually be interested in buying their products. This would reduce the value Amazon’s customers and potential advertisers obtain from the site. It could also reduce the conversion rate, forcing advertisers to spend more money to get the same results—thus increasing prices. 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. This would be a true step toward making America affordable again.
