FTC sues Amazon over alleged 'secret ad surcharge scheme'

Amazon is facing a new lawsuit from the Federal Trade Commission (the U.S. antitrust and consumer-protection regulator) and 22 states, accusing the company of secretly charging businesses more for advertising on its platform. The lawsuit, filed Monday in federal court, claims Amazon spent more than seven years quietly increasing the prices advertisers paid through its online ad auctions, allegedly affecting more than 1 million brands and sellers and potentially generating tens of billions of dollars in additional revenue for Amazon. The 22 states joining the FTC include California, New York, Florida, Illinois, and Washington, among others.

The lawsuit centers on Amazon’s Sponsored Products ads, Sponsored Brands ads, and Display ads that run alongside its search results. According to the FTC, Amazon told more than 500,000 small and medium-sized businesses it ran a “second-price” auction, in which the winning advertiser would pay just one cent more than the next-highest bid rather than the full amount of their own bid — an arrangement that gave advertisers an incentive to bid high, trusting the system would keep their actual costs in check.

But the FTC alleges that starting in 2019, Amazon made a “surreptitious” change without telling advertisers: it added a hidden surcharge it internally called a “soft reserve price,” and used what one internal document called an “invented auction participant” — a fake bidder — to push prices higher than genuine competition would have produced. The complaint alleges this amounted to a shill bid, with Amazon charging Sponsored Products advertisers their own full winning bid close to 80% of the time, effectively turning the marketed second-price auction into a first-price one. The FTC claims Amazon made the change to boost advertising revenue and kept it hidden because disclosure could have led advertisers to lower their bids. Amazon generated more than $68 billion in advertising revenue last year.

In a blog post, Amazon called the FTC’s lawsuit “misguided,” arguing that the complaint “fundamentally misunderstands how advertisers operate.” The company said its auctions evaluate billions of bids across different placements and formats, so prices naturally vary, and that advertisers are “properly” informed about the pricing system.

Why it matters

The case adds to Amazon’s mounting regulatory scrutiny and, if proven, would show one of the industry’s largest ad platforms manipulating an auction it marketed as fair, a precedent that could reshape how ad-tech disclosure rules are enforced elsewhere.