The U.S. Federal Trade Commission (FTC) and 22 states have filed a lawsuit against Amazon, accusing the company of inflating prices in its online ad auctions for Sponsored Products, Sponsored Brands, and Sponsored Display, thereby misleading its advertising customers for years.
The financial scale of the allegation is significant. The FTC estimates that the hidden surcharge system may have allowed Amazon to extract more than $20 billion in additional revenue from advertisers. It is worth noting that this figure is an estimate cited in the complaint, not the amount of any fine or damages already imposed.
Andrew N. Ferguson, Chairman of the FTC, said: «When one of the world’s largest online retailers engages in unfair and deceptive practices, the impact can be devastating. Amazon has millions of advertising customers who were misled and forced to pay significantly higher prices. Those higher costs were largely passed on to American consumers«.
The 22 attorneys general joining the lawsuit represent the states of 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.
According to the complaint, since late 2018 Amazon has systematically imposed hidden and unfair surcharges on the roughly 1.2 million advertisers on its platform, more than 500,000 of whom are believed to be small and mid-sized businesses. Specifically, the complaint alleges that for years the tech giant presented its ad auctions as a competitive generalized second-price (GSP) auction process while secretly altering the resulting price after the auction had ended.
«Amazon claims, and advertisers believe, that competitive auctions determine advertising prices on its main eCommerce website. In reality, however, Amazon overrides and replaces the actual auction results with higher prices set by Amazon to increase its profits. For years, Amazon has secretly inflated auction prices for three of its advertising products: Sponsored Products, Sponsored Brands, and Sponsored Display,» the complaint states.
In the GSP system, the ad with the best combination of bid and relevance wins, but the winner does not pay its maximum bid. Instead, it pays approximately the minimum amount needed to beat the runner-up. In other words, if you bid $2 and the second-place bidder offers $1, you would pay roughly $1.01.
The complaint argues that Amazon continued to communicate this explanation even after it had effectively changed the system in practice. «Amazon did not notify its customers about this change and took active steps to conceal it, while continuing to claim that it operated second-price auctions«.
According to the FTC, Amazon shifted to the following process: it first ran its ad auctions and identified the winning and second-place bidders, and then set a price higher than the one produced by the auction in order to maximize its profits and reduce advertisers’ campaign ROAS.
The complaint explains that «Unlike legitimate bids, Amazon’s “bids” are expressly designed to lose the auction and finish in second place by the narrowest possible margin, in order to maximize Amazon’s revenue and avoid detection. In setting these bids, Amazon runs no risk that these “bids” will cause it to win the auction and therefore have to remove advertising space from the auction and sacrifice potential revenue«. The complaint equates this practice with “shill bids” or “fraudulent bids.”
Internally, meanwhile, Amazon referred to this system as a “soft reserve pricing system”. This term is commonly used in auctions to refer to the lowest bid a seller will accept (the starting price). However, as the complaint notes, Amazon’s “soft reserve prices” «are not a minimum amount that an advertiser must offer in order to compete in Amazon’s ad auction… Members of Amazon’s Sponsored Products team internally referred to their “soft reserve prices” as “after-the-fact price adjustments”, which have “an element of unfairness” because “advertisers might not expect them”«.
Among other evidence, the document cites internal statements made by Amazon’s Senior Vice President in charge of Amazon Ads, who explained that «the second price is not set by a real bidder, but by Amazon« in the form of a «reference second price that we calculate«.
According to the data presented by the FTC, this hidden Amazon practice has led, in recent years, to advertisers increasingly paying the full amount of their bids. Specifically, in Sponsored Products, the percentage of times advertising customers paid their full bid amount rose from between 30% and 40% in 2021 to 70% in 2022 and to 80% in 2024.
The complaint claims that Amazon especially increased the surcharges during Black Friday, Prime Day, and other peak-demand periods because these high-sales-volume days provided a plausible alternative explanation for the rise in CPC.
On Prime Day 2023, several major advertisers complained after CPCs surged. In response, «Amazon once again chose to cover up its conduct and repeated its false explanations that CPC increases were due to heightened shopper activity. It also implemented “surcharge alarms” and caps to prevent excessive CPC spikes from recurring during high-demand events«.
For its part, Amazon responded by issuing a statement rejecting the FTC’s claims and arguing that the lawsuit is based on a misunderstanding of how its ad auctions work. The company does not deny using so-called soft reserve prices, but says these reserve prices are common across the industry and are intended to reflect the true value of each ad placement. It also emphasizes that an advertiser never pays more than the maximum amount it bid.
Amazon denies that its system harmed advertisers or consumers. According to its figures, between 2019 and 2024 the average CPC for Sponsored Products remained stable when adjusted for inflation, while conversion rates grew by 24% between 2021 and 2025.
It also claims that average winning bids fell by 50% between 2019 and 2025 and estimates that prioritizing ad relevance over bid amount allowed advertisers to save more than $8 billion between 2021 and 2025.
As for the communications cited by the FTC, Amazon acknowledges that some older materials contained simplified explanations of the auctions, but says they had limited scope and were updated or removed once identified. In the company’s view, the FTC cherry-picked a few examples from roughly 1.5 million pages of documentation to build what Amazon considers a “demonstrably false” case.
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