Amazon faces a federal lawsuit over allegations that it secretly raised advertising-auction charges. The FTC and 22 states filed the case on August 31.
The regulators allege the conduct affected more than one million brands and sellers. However, Amazon disputes the claims and calls the lawsuit misguided.
The Alleged Secret Surcharges
The case concerns ads that appear alongside product-search results. Advertisers bid for Sponsored Products, Sponsored Brands, and Sponsored Display placements. The platform ranks bidders for each advertising keyword.
According to the FTC, Amazon represented its auctions as second-price auctions. Under that approach, a winner pays only the amount needed to beat the next-highest bidder. Therefore, advertisers can bid closer to the placement’s value.
The FTC alleges that Amazon changed the price after the auction selected a winner. Regulators say the company added an undisclosed “soft reserve price.” The added amount allegedly increased the final charge beyond the competitive auction result.
The agency says the company concealed the change from advertisers. It also alleges that the company used higher surcharges during high-volume shopping days. Prime Day and Black Friday appear in the complaint as examples.
The FTC says the surcharges changed how often Sponsored Products advertisers paid their own bid. That rate allegedly rose from 30% to 40% in 2021. The agency says the rate reached about 80% by 2024.
Amazon Faces an Ad Pricing Lawsuit
As a rebuttal, Amazon says the advertisers knew their bids set the maximum amount they could pay. It also says reserve prices remain standard across the advertising industry. The company argues that advertisers adjust bids based on auction outcomes and campaign performance.
In addition, Amazon says its auction system uses relevance models to select useful ads. Those models consider the shopper’s search query and likely engagement. The company says it does not simply select the highest bid.
Moreover, Amazon cites its own data to support its position. It says inflation-adjusted average cost per click stayed flat from 2019 through 2024. It also says conversion rates rose 24% for individual Sponsored Products advertisers from 2021 through 2025.
However, the FTC alleges that Amazon continued to present the system as a second-price auction. The complaint cites internal references to a hidden surcharge. It also cites an “invented auction participant” that allegedly raised advertiser prices.
The Impact on Advertisers and Shoppers
The FTC estimates that the alleged scheme extracted more than $20 billion from advertising customers. The agency says more than 500,000 small and medium-sized businesses took part in the auctions. Those businesses competed for placements on Amazon’s website and mobile app.
Furthermore, the FTC also says higher advertising costs largely passed to American consumers. However, Amazon disputes that conclusion. The company says the complaint does not provide evidence of consumer price increases.
Therefore, the dispute extends beyond one company’s ad tools. It examines whether auction descriptions matched the prices advertisers ultimately paid and tests whether platforms must disclose reserve-price systems clearly.
What the Case Could Change
The FTC and the states seek to stop the alleged conduct. They also seek monetary relief and civil penalties where the law authorizes them. The FTC lists the case as pending.
However, Amazon can challenge the allegations in court. The parties can also pursue a settlement before trial. Ultimately, the outcome could influence future disclosures about advertising-auction pricing.
