- The FTC and 22 US states have sued Amazon, alleging it secretly inflated advertising auction prices for more than seven years.
- Regulators say Amazon falsely presented its ad auctions as second-price auctions while charging advertisers higher prices through hidden surcharges.
- The lawsuit claims more than one million advertisers, including over 500 000 SMEs, were overcharged, generating tens of billions of dollars for Amazon.
- The FTC alleges Amazon increased surcharges during high-demand events like Prime Day and Black Friday, with advertisers paying their full bid about 80% of the time by 2024.
- Amazon denies the claims, arguing it clearly explains its auction system and that its ad technology has reduced advertisers’ costs and improved ad relevance. *
The US Federal Trade Commission (FTC) and attorneys general from 22 states have filed a lawsuit against Amazon, accusing the e-commerce giant of secretly inflating advertising auction prices for millions of brands and sellers over more than seven years.
Filed in the US District Court for the Western District of Washington, the complaint alleges Amazon misled advertisers by claiming it operated a standard “second-price” auction system while quietly introducing hidden surcharges that dramatically increased what advertisers paid for sponsored search placements.
Widespread consequences
According to the FTC, the practice has likely cost advertisers tens of billions of dollars and ultimately pushed higher costs onto consumers through increased product prices.
FTC chairman Andrew Ferguson said the alleged conduct had widespread consequences because of Amazon’s dominant position in online retail and advertising.
“Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers,” Ferguson said.
The lawsuit claims Amazon’s advertising platform, which serves more than one million advertisers including more than 500 000 small and medium-sized businesses, represented for years that winning advertisers would pay only one cent more than the next highest bidder in its sponsored advertising auctions.
Instead, regulators allege Amazon increasingly charged advertisers the full amount of their winning bids, effectively converting its advertised second-price auctions into first-price auctions without informing customers.
‘Soft reserve price’
The distinction is significant because advertisers use different bidding strategies depending on the auction format. In a genuine second-price auction, advertisers are encouraged to bid closer to the true value they place on an advertising placement because they expect to pay only slightly more than the next highest bid. In first-price auctions, advertisers typically lower their bids to avoid overpaying.
According to the complaint, Amazon exploited advertisers’ belief that the auctions followed industry-standard generalised second-price (GSP) rules.
The FTC alleges Amazon introduced what it internally called a “soft reserve price” in 2019 – an undisclosed surcharge added after auction bids were submitted. Internal company documents cited in the complaint allegedly describe the additional charge as “a surcharge hidden in it” and refer to an “invented auction participant” used to increase prices beyond genuine advertiser competition.
Regulators claim the surcharge became increasingly aggressive over time. The complaint alleges advertisers paid their full winning bid between 30% and 40% of the time in 2021, rising to around 70% in 2022 and approximately 80% by 2024 for Sponsored Products advertisements.
Amazon rejects allegations
The FTC further alleges Amazon increased surcharges during major shopping events such as Prime Day and Black Friday to maximise advertising revenue while disguising the changes from customers.
Internal communications quoted in the lawsuit suggest executives feared disclosing the pricing changes would cause “irrevocable damage to advertiser trust” and trigger advertisers to reduce their bids, leading to substantial revenue losses.
Amazon has strongly rejected the allegations.
In a statement published shortly after the lawsuit was filed, the company said the FTC’s case is based on a “flawed premise” and argued it has always explained how its advertising auctions operate.
Amazon said advertisers adjust bids according to campaign performance rather than auction mechanics and maintained that improvements to its advertising technology have delivered more relevant ads while lowering advertisers’ costs.
The company claims advertisers collectively saved more than $8 billion between 2021 and 2025 because ad relevance increasingly determined auction winners instead of bid value alone. Amazon also said the average winning bid for Sponsored Products search ads fell by 50% between 2019 and 2024.
The FTC argues those claims do not address the core issue: that Amazon allegedly concealed changes to its auction pricing system while extracting billions in additional advertising revenue.
The Commission voted 2-0 to authorise the lawsuit, which seeks to stop the alleged practices and secure financial relief for affected advertisers.
Will this move affect South African Amazon advertisers?
* While the lawsuit is US-focused, it raises questions for South African brands and sellers using Amazon Ads about whether similar auction-pricing practices could have operated in other Amazon marketplaces. There is currently no indication that the FTC’s allegations apply to Amazon.co.za.
There are nevertheless three reasons it matters to South African advertisers:
- Amazon’s alleged auction practices could have broader implications. If the pricing technology or auction methodology described by the FTC was used across multiple Amazon marketplaces, South African advertisers could potentially have been exposed to similar practices. The lawsuit itself does not establish that this happened in South Africa.
- Amazon.co.za has its own Sponsored Ads marketplace. Amazon launched Sponsored Products, Sponsored Brands and Sponsored Display in South Africa in 2024, so South African brands and sellers are directly participating in Amazon’s advertising ecosystem.
- The case raises a broader transparency issue for advertisers. Amazon currently says advertisers set the maximum amount they are willing to pay and that auction outcomes consider factors including bids and expected customer interest. The FTC’s allegations could prompt advertisers globally to scrutinise how those auctions actually determine their final costs.
* Summaries created by AI
