The Federal Trade Commission and 22 state attorneys general have filed a major lawsuit accusing Amazon of secretly changing the economics of its advertising auctions. The complaint alleges that Amazon told advertisers they were participating in generalized second-price auctions while increasingly charging winning bidders amounts close to their full bids, potentially extracting tens of billions of dollars in additional advertising revenue.
FTC Lawsuit Targets Amazon’s Advertising Auction Mechanics
Amazon’s advertising business is facing one of its most consequential regulatory challenges yet—not over what advertisements appear on its marketplace, but over how much advertisers are charged to win those placements.
The Federal Trade Commission (FTC), joined by attorneys general from 22 states, has sued Amazon, alleging that the company secretly altered the pricing mechanics behind its online advertising auctions and concealed those changes from brands and sellers.
The complaint, filed in the U.S. District Court for the Western District of Washington, alleges that Amazon’s practices affected more than one million advertising customers, including more than 500,000 small and medium-sized businesses, over a period of more than seven years.
The FTC claims the alleged scheme generated tens of billions of dollars in additional revenue for Amazon.
The allegations have not been proven in court, and Amazon will have the opportunity to respond to the claims.
At the center of the case is a deceptively technical question with major financial consequences: Was Amazon actually running the second-price advertising auctions it told advertisers they were participating in?
Second-price auctions shape how advertisers bid
Amazon sells advertising placements including Sponsored Products, Sponsored Brands and Display Ads through auctions triggered by searches on its marketplace.
The company allegedly represented these auctions as generalized second-price (GSP) auctions. Under that model, the advertiser winning an auction does not normally pay its entire winning bid. Instead, the winner pays an amount determined by the next-highest bid and the auction’s pricing rules.
The distinction affects bidding behavior.
In a first-price auction, the winning advertiser pays its own bid. Advertisers therefore have an incentive to lower bids or use bid shading to avoid paying more than necessary.
In a second-price auction, advertisers can bid closer to what an impression or placement is actually worth because the final price is determined by the competitive auction rather than simply their maximum bid.
The FTC alleges Amazon told advertisers for years that successful bids would generally cost only a small increment above the next-highest bid.
The complaint says the company’s actual pricing increasingly diverged from that model.
The alleged “soft reserve” changed the equation
According to the complaint, Amazon introduced an undisclosed pricing mechanism in 2019 that it internally referred to as a “soft reserve price.”
The FTC alleges that the mechanism effectively allowed Amazon to impose an additional surcharge on the auction outcome, pushing the final price above what the underlying GSP auction would have produced.
The complaint claims that Amazon internally described aspects of the system in terms suggesting that the additional price was not determined by a genuine competing advertiser.
The FTC also alleges that Amazon used what internal documents referred to as an “invented auction participant” and a “proxy 2nd price” to increase prices.
Those allegations are significant because they go directly to the transparency of the auction. In an advertising marketplace, the competitive bids are supposed to provide the economic basis for determining the value of inventory.
If the platform itself introduces an undisclosed artificial bid or pricing floor, advertisers may be making decisions based on an auction mechanism that does not operate as they believe it does.
The alleged shift toward first-price economics
The FTC says the effect of the pricing changes can be seen in how often Sponsored Products advertisers allegedly paid their full winning bids.
According to the complaint, that percentage increased from roughly 30% to 40% in 2021, to about 70% in 2022, and approximately 80% in 2024.
The FTC argues that this transformed what advertisers believed was a second-price auction into something much closer to a first-price auction.
That distinction can materially change campaign economics.
An advertiser bidding $5 for a keyword under a second-price model may expect to pay substantially less if competing bids are lower. Under a first-price structure, that same $5 bid can become the actual cost.
At scale, small differences between expected and actual auction pricing can become substantial advertising expenditures.
Why advertisers’ expectations matter
The FTC’s case also focuses heavily on alleged concealment.
According to the complaint, Amazon knew that advertisers could reduce their bids if they understood that the auction was effectively becoming a first-price mechanism.
That creates a feedback loop.
Advertisers who believe they are participating in second-price auctions may bid more aggressively because they expect to pay only the amount necessary to beat the next competitor. If the platform subsequently charges closer to the full bid, advertisers can end up paying more than they would have under their assumed auction rules.
The complaint alleges that Amazon deliberately maintained this perception because revealing the pricing changes could cause advertisers to lower their bids and reduce Amazon’s advertising revenue.
The FTC cites internal communications that allegedly discussed advertiser trust and the potential financial consequences of exposing the surcharge system.
Prime Day and high-volume events add another dimension
The complaint also alleges that Amazon adjusted the surcharge system according to demand.
The FTC claims the company increased prices on ordinary shopping days and applied even larger increases during high-volume periods such as Prime Day and Black Friday.
That would make the alleged system particularly consequential for advertisers competing for high-intent shoppers during periods when advertising demand is already elevated.
For retail media advertisers, these are often among the most commercially important days of the year. Higher advertising costs can affect return on ad spend, customer acquisition costs and ultimately product pricing.
A broader test for retail media transparency
The case reaches beyond Amazon.
Retail media networks have become increasingly important advertising channels because they combine advertising inventory with first-party shopping data and purchase intent. Amazon is arguably the most mature example of this model, but retailers and commerce platforms across the industry are building similar businesses.
The advertising model also differs from the open web.
Platforms such as Google and Meta operate enormous advertising marketplaces, while retailers increasingly control their own inventory, audience data and measurement environments.
That creates an inherent transparency challenge.
Advertisers need to understand not only whether an ad reaches the intended audience, but also how the price of that impression or placement is determined.
The Amazon case could therefore become an important regulatory test for auction transparency, algorithmic pricing and retail media governance.
What enterprise advertisers should watch
For brands and agencies, the case highlights the importance of auditing media costs rather than relying exclusively on platform-level reporting.
Enterprise advertising teams increasingly need to evaluate effective CPCs and CPMs, bid behavior, incremental conversions, attribution and auction mechanics across retail media platforms.
The case may also encourage advertisers to ask more detailed questions about whether a platform’s auction model has changed and whether those changes have been clearly disclosed.
The FTC’s complaint was authorized by a 2-0 Commission vote.
If the government’s allegations ultimately survive litigation, the consequences could include financial penalties, changes to Amazon’s auction practices and broader scrutiny of how closed advertising platforms disclose their pricing mechanisms.
More importantly, the lawsuit puts a fundamental principle of digital advertising under the microscope: advertisers need to know what auction they are actually participating in.
As retail media becomes a larger share of global advertising budgets, that question is unlikely to become less important.
Market Landscape
The case arrives as retail media and commerce advertising increasingly compete with established digital advertising channels for brand budgets. Retail platforms have a unique advantage because they can combine advertising exposure with first-party shopping and transaction data.
That advantage also creates an unusual level of platform control. A retailer can potentially control inventory, audience data, auction mechanics, attribution and the consumer transaction in one ecosystem.
The FTC’s allegations highlight the resulting transparency challenge.
For the wider AdTech industry, the most consequential aspect may be the focus on auction design rather than conventional ad fraud. If regulators establish that advertisers must receive clearer disclosures when platforms materially alter auction pricing, similar scrutiny could extend to other closed advertising ecosystems.
The case also reinforces the growing importance of supply-path transparency and independent media measurement as advertisers diversify spending across retail media networks.
Top Insights
- The FTC alleges Amazon secretly altered its ad auctions, causing advertisers to pay close to their full bids while believing they participated in second-price auctions.
- Sponsored Products were particularly affected, with the complaint alleging full-bid payments increased from roughly 30–40% in 2021 to about 80% in 2024.
- The alleged surcharge system could reshape retail media oversight, raising questions about algorithmic pricing, auction transparency and advertiser disclosure requirements.
- More than 500,000 small and medium-sized businesses allegedly participated in affected auctions, potentially making advertising costs a significant issue for marketplace sellers.
- The lawsuit could influence the broader AdTech ecosystem, particularly closed platforms where inventory, audience data, auction technology and measurement are controlled by one company.
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