FTC Sues Amazon Over Alleged Secret Ad Auction Surcharge
The FTC and 22 states have sued Amazon, alleging it secretly raised advertising auction prices for more than seven years, affecting over a million brands and sellers and generating tens of billions in extra revenue.
The U.S. Federal Trade Commission, joined by 22 states, filed a lawsuit against Amazon on Monday accusing the company of secretly inflating the prices advertisers paid through its online ad auctions over a period of more than seven years.
The states involved are Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont, and Washington. The complaint focuses on Amazon's Sponsored Products, Sponsored Brands, and Display ads that appear alongside search results.
A hidden charge
According to the FTC, Amazon told more than 500,000 small and medium-sized businesses that its ads ran on a "second-price" auction model, where the winner pays just one cent more than the next-highest bid rather than their own full bid. This encouraged advertisers to bid aggressively, trusting the system would cap their actual costs near competitors' offers.
But starting in 2019, the FTC alleges, Amazon quietly introduced a hidden markup internally called a "soft reserve price," along with what one internal document referred to as an "invented auction participant" — effectively a fake bidder used to push prices above genuine competitive levels. The complaint describes this as a shill-bid tactic, where the higher price advertisers had to beat came from Amazon itself rather than a real competitor.
As a result, the FTC claims Amazon charged Sponsored Products advertisers their own full bid close to 80% of the time, effectively converting the advertised second-price system into a first-price one. The agency alleges Amazon made the change to boost ad revenue and concealed it because disclosure could have prompted advertisers to lower their bids. Amazon generated more than $68 billion in advertising revenue last year.
In a blog post, Amazon called the lawsuit "misguided," saying it "fundamentally misunderstands how advertisers operate." The company said its auctions process billions of bids across various placements and formats, causing prices to naturally vary, and maintained that advertisers are properly informed about how pricing works.
