Another claim is that Amazon accepts payments from advertisers, called sponsored ads, that appear on the same webpage as unsponsored search results. Amazon does this, supposedly, to extract higher fees from third-party sellers. The lawsuit claims this places third-party sellers who compete with Amazon’s own products at a cost disadvantage, because Amazon gives favorable placement to its own products and to sellers who buy sponsored ads from Amazon. Thus, according to the complaint, sellers feel pressure to pay for advertising to make sure their products are not buried underneath the deluge of sponsored products.
The complaint greatly oversimplifies how sponsored advertising works online. With more than two million merchants selling to more than 300 million customers, not even Amazon has enough information about the products being sold on its Marketplace to consistently feature ones that are likely to be top sellers.[18] Amazon knows even less about the demand for new products being introduced for the first time. Neither Amazon nor anyone else can know which products will be most appealing to specific customers at any given time.
Online sponsored advertising helps by providing a price-based mechanism to identify which products should be shown first to consumers. Online ads are only effective if merchants have products people do not know about and would like to buy. People may grumble at times about the amount of online advertising, but it is not different than television, radio and newspaper ads, which people also grumble about. As long as we keep staring at screens, it will remain ubiquitous.
Nessel’s allegation in the complaint appears to claim that excessive online advertising could disadvantage Amazon shoppers if less desirable and inferior products are featured first as a result of sponsored ads. If so, then online advertising may also increase sellers’ costs, and sellers would pass those costs on to Amazon shoppers by charging higher prices. This would mean Amazon prominently displays products consumers do not want. If that were true, overall sales would decrease, and Amazon would lose business.
This also assumes that the benefits consumers receive from sponsored advertising are nonexistent or insignificant. Consumers are not sheep waiting to be sheered. If the products they buy on Amazon turn out to be overpriced and poor quality, they will shop someplace else.
Sellers benefit from sponsored advertising because this advertising conveys information that helps consumers find products they want to buy. The sellers paying for the sponsored ads are in the best position to assess whether the ads are effective. Sellers will only benefit from this advertising if it results in more satisfied customers.