For businesses selling on Amazon, winning an advertising auction may have come with a hidden price.
The Federal Trade Commission and 22 states sued Amazon on Aug. 31, accusing the retail giant of quietly manipulating its ad auctions, secretly inflating ad prices, and collecting more than $20 billion in improper charges.
The case involves about 1.2 million advertisers, including hundreds of thousands of small and midsize businesses. Regulators say many paid more than expected without realizing it.
Filed in the U.S. District Court in the Western District of Washington, the FTC complaint states:
Since 2019, Amazon.com, Inc. (‘Amazon’) has secretly and systematically overcharged its approximately 1.2 million advertising customers by manipulating the ‘auctions’ that it uses to set the price of ads on its platform. Amazon represents, and advertisers believe, that competitive auctions set the prices for advertising on its leading e-commerce website. But, in reality, Amazon overrides and replaces the actual auction results with higher prices set by Amazon to increase its profits. For years, Amazon has secretly inflated the auction prices for three of its advertising products: Sponsored Products, Sponsored Brands and Sponsored Display.
Amazon allegedly told advertisers it generally used a “second-price” auction. Under that system, the winner pays slightly more than the second-highest bid — not the full amount it offered.
But regulators say that isn’t always what happened. According to the lawsuit, Amazon began changing the process in 2018. Instead of setting the price based on the runner-up’s bid, the company often charged winners according to their own, higher bids. The FTC says that difference amounted to a hidden surcharge.
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Internal discussions cited in the complaint suggest Amazon knew advertisers believed they were participating in true second-price auctions. In one 2023 document, employees reportedly noted that some advertisers submitted bids as high as $100 or $1,000 because they trusted Amazon not to charge the full amount.
Regulators also allege that Amazon carefully tested how advertisers reacted to higher prices. The company reportedly introduced the changes slowly to avoid raising concerns, then monitored whether advertisers lowered their bids or budgets. After seeing little change, Amazon expanded the increases. One manager described the strategy as moving away from a second-price auction while “hoping that advertisers don’t notice and decrease bids or ad spend.”
The FTC says the practice continued for seven years and brought in tens of billions of dollars for Amazon, and the costs may not have stopped with advertisers — they believe businesses passed at least some of the added expense on to shoppers through higher product prices.
Amazon tells a different story. The company denies the allegations and calls the lawsuit “misguided.”
“Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics,” Amazon said in its response.
The company argues that its system considers how relevant an ad is to a shopper rather than automatically choosing the highest bidder. Amazon estimates that this approach saved advertisers more than $8 billion from 2021 through 2025. It also emphasized that “in no scenario does an advertiser pay more than their bid.”
Additionally, the company points to lower ad prices. It says average winning bids for sponsored-product ads fell by half between 2019 and 2025, while sales produced by ad clicks increased.
“Advertisers paid the same or less for advertising that delivered increasingly better results,” the company said. Amazon says it shared its data and explanation of the auction system with the FTC several times.
Regulators are seeking an end to the alleged practices, along with penalties, damages, and restitution for advertisers. The allegations have not been proven in court.
The outcome of the suit could reshape how Amazon runs its massive advertising business. For sellers, the question is simple: Did they know what they were agreeing to pay, or was Amazon changing the rules? That’s now up to a court to decide.
Source: https://mashable.com/tech/ftc-amazon-advertising-auction-lawsuit
