The FTC and 22 U.S. states are suing Amazon for allegedly engaging in deceptive and unfair practices that “secretly inflated prices in its online search advertising auctions.” The complaint says that for over seven years, Amazon covertly increased the prices that more than a million brands and sellers paid to advertise on its platform, which illegally extracted more than $20B from its advertisers.
Yeah, I believe it. Case closed.
Here’s how the FTC claims Amazon did it: Amazon sells ad slots by auction, which it claimed for years to be a “second price” auction, the industry standard. This means that the highest bidder wins, but only pays a penny more than the runner-up, regardless of their actual bid. For example, if your competitor bids $0.80 and you bid $1.10, you would just pay $0.81, not the $1.10.
The system allows advertisers to set high bids that they could in theory afford to pay, with the understanding that they aren’t likely to hit that top bid based on actual market demand. The alternative requires constant management. For example, imagine setting your bid at $0.79, and then your competitor bids $0.80, so you have to go back in and bid $0.81, and so on. Eventually, one advertiser would reach their top bid anyway and tap out, so the “second price” auction is designed to help find that market price without having to manually bid up one penny at a time.
Here’s the thing though: Amazon allegedly told advertisers that was how its system worked, but that wasn’t actually the case. The FTC says Amazon quietly added a hidden markup it called a “soft reserve” price, which effectively is a fake bidder. Amazon invented a number and charged advertisers against it, even though there was no other advertiser bidding that amount. Using the earlier example, imagine having to pay $0.81 per click on a competitor-less auction that you could be paying $0.02 on.
An internal Amazon document even referenced the fact that its auction pricing had “a surcharge hidden in it.” There was also an Amazon Ads executive who flat out said internally that the price paid by advertisers “isn’t set by an actual bidder,” but is instead a “proxy 2nd price that we calculate,” while another employee stated elsewhere that Amazon’s surcharges enable it to obtain prices “beyond what [can] be achieved through advertiser competition.”
Jesus Christ, Amazon!
FTC Chairman Andrew N. Ferguson said:
“When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering. Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers. The FTC under President Trump won’t allow this deception to continue.”
The FTC is seeking civil penalties, restitution, and other unspecified damages.
Amazon called the claims “misguided” and says the FTC “fundamentally misunderstands how advertisers operate.” Amazon says that it saved advertisers over $8B from 2021 to 2025 as a result of it prioritizing ad relevancy over selecting ads on bid price alone, and that its practices had no impact on consumer pricing. Because apparently advertisers just eat that cost themselves and never pass it onto consumers, right?
The company wrote in a blog post:
“We have shared all of this with the FTC on multiple occasions. The data, the industry context, the evidence of how advertisers actually behave, and the information showing our auction works as intended. They have shown little interest in engaging with the facts and appear more focused on trying to secure a substantial monetary victory for themselves and states they can lure with this possibility.”
Amazon and the FTC plan to face off in court, but no trial date has been set yet.
