Amazon’s advertising auction model is facing another major legal challenge as New York Attorney General Letitia James joins the Federal Trade Commission and 21 other states in alleging that the company manipulated the pricing of ads on its e-commerce platform. The coalition claims Amazon used undisclosed bidding mechanisms to overcharge more than 1.2 million advertisers by more than $20 billion, potentially pushing higher advertising costs into consumer prices.
New York Joins FTC Lawsuit Accusing Amazon of Manipulating Ad Auctions
The regulatory fight over Amazon’s advertising business is becoming increasingly focused on the mechanics behind its auctions.
New York Attorney General Letitia James has joined the Federal Trade Commission (FTC) and a bipartisan coalition of 21 other states in suing Amazon, alleging that the company manipulated its online advertising auctions and secretly charged advertisers more than they should have paid.
The lawsuit alleges that Amazon’s practices resulted in more than $20 billion in overcharges affecting more than 1.2 million advertisers, including hundreds of thousands of small and medium-sized businesses.
The allegations have not been established by a court, and Amazon will have an opportunity to respond as the litigation proceeds.
At the center of the dispute is Amazon’s representation that advertisers participate in second-price auctions, compared with what regulators allege was an undisclosed mechanism that effectively caused winners to pay much closer to their own bids.
How Amazon’s advertising auctions are supposed to work
Amazon has sold advertising on its e-commerce platform since 2012. Businesses can bid for placements associated with product searches, with rankings determined by factors including the advertiser’s bid and the relevance of its advertisement to the shopper’s query.
According to the New York Attorney General’s office, Amazon repeatedly told advertisers that its auction system followed a second-price model.
Under that structure, the winning advertiser does not simply pay its maximum bid. Instead, the final price is generally based on the amount required to beat the next-highest competing bid.
Amazon’s own marketing materials allegedly described the model in simple terms: winners would pay approximately one cent more than the next-highest bid.
For advertisers, that distinction influences bidding strategy.
If an advertiser knows it will pay its full bid, it has an incentive to limit the bid to what it believes the placement is worth. In a second-price environment, advertisers can bid more aggressively because they expect the final price to be determined by competition.
The lawsuit argues that Amazon exploited that expectation.
Regulators allege Amazon inserted fake competing bids
According to the coalition, Amazon’s second-price auction mechanism was not operating as advertised.
The complaint alleges that beginning in 2018, Amazon introduced a system in which it effectively submitted a higher second-place bid after the auction had concluded.
The purpose, regulators allege, was to increase the amount paid by the winning advertiser.
Because Amazon does not expose all underlying auction data to advertisers, the coalition says customers had no practical way to determine whether the price they were charged represented the genuine minimum required to win or an amount artificially increased by Amazon.
That alleged opacity is central to the case.
Advertising auctions depend on a degree of trust. Advertisers may not see every algorithmic calculation, but they need to understand the fundamental rules governing how bids become prices.
If the platform secretly changes those rules while maintaining the appearance of a competitive auction, advertisers may make bidding decisions based on incorrect assumptions.
The alleged impact exceeds $20 billion
New York’s attorney general says the coalition’s investigation found that Amazon’s practices resulted in more than $20 billion in overcharges.
The alleged financial impact extends across the platform’s advertiser base, including large brands and smaller businesses that depend on Amazon to reach shoppers.
That makes the case particularly relevant to the economics of retail media.
Amazon’s advertising business is closely integrated with its e-commerce marketplace. Brands and sellers can advertise products directly where consumers are searching and purchasing, making sponsored placements an important component of marketplace visibility.
Higher advertising costs can therefore affect more than a marketing budget.
For businesses operating on relatively thin margins, increased acquisition costs can influence product pricing, promotional strategies and decisions about how much inventory to advertise.
The coalition further argues that consumers may ultimately bear part of the cost because businesses can pass higher advertising expenses into retail prices.
Prime Day and Black Friday allegedly brought higher surcharges
The complaint also alleges that Amazon increased advertising prices during high-volume shopping periods.
Black Friday and Prime Day are particularly valuable periods for advertisers because shopper activity and purchasing intent increase significantly.
According to the New York Attorney General’s office, Amazon’s alleged bidding practices resulted in even higher ad prices during these major shopping events.
That could make the alleged conduct especially consequential for retailers and brands competing for high-value product-search placements when advertising demand is already elevated.
For enterprise marketing teams, those periods are often among the most closely monitored moments of the year because changes in CPCs, conversion rates and return on ad spend can materially affect campaign profitability.
Advertiser trust is becoming a regulatory issue
The lawsuit’s allegations also raise a broader issue around advertising platform transparency.
Advertisers increasingly rely on automated auctions operated by technology platforms. The same basic infrastructure powers much of programmatic advertising, search advertising and retail media.
But retail media has a distinctive structure.
Amazon controls the marketplace, consumer search environment, advertising inventory and significant portions of the data and measurement surrounding the transaction. That vertical integration creates valuable first-party signals, but it also means advertisers have limited visibility into the underlying auction.
The regulators allege Amazon understood that advertisers would lower their bids if they knew how the auction actually worked.
That alleged incentive is important because it turns transparency into an economic issue rather than simply a technical one.
Implications for the wider retail media market
The case arrives as retailers and commerce platforms are expanding their advertising businesses.
Companies such as Walmart, Target and other commerce businesses are developing retail media networks that allow brands to buy advertising against first-party shopper signals.
The more money that moves into these networks, the more important auction integrity becomes.
Advertisers need to know how bids are ranked, how final prices are calculated and whether the auction operates according to the rules communicated by the platform.
For agencies and enterprise advertisers, the Amazon lawsuit could encourage greater scrutiny of effective media costs and auction mechanics across retail media networks. Independent measurement and detailed platform reporting could become more important as advertisers seek to validate campaign economics.
A potential turning point for advertising auctions
The coalition is seeking a court order requiring Amazon to stop the alleged practices, along with financial penalties, restitution and other damages.
The lawsuit also invokes federal and state consumer-protection laws, including the FTC Act and New York’s FAIR Business Practices Act.
The eventual outcome could have implications well beyond Amazon.
If regulators succeed in establishing that undisclosed changes to advertising auction mechanics constitute deceptive conduct, other platforms could face greater pressure to explain how their auctions work and how prices are determined.
For an advertising industry increasingly built around automated marketplaces, that would be a significant development.
The fundamental question is straightforward: when an advertiser enters a digital auction, can it trust that the price it pays is actually determined by the auction rules the platform promised to use?
The Amazon case could help define the regulatory answer.
Market Landscape
The lawsuit comes at a pivotal moment for retail media. Commerce platforms are increasingly competing with traditional search and social advertising by offering brands access to first-party shopping data and consumers close to the point of purchase.
Amazon’s alleged conduct, if established, would highlight a key weakness of closed advertising ecosystems: the same company can control inventory, audience data, auction technology and measurement.
That makes independent transparency difficult.
The broader advertising market is already moving toward greater scrutiny of auction mechanics, supply-path transparency, algorithmic pricing and platform accountability. As retail media spending expands, advertisers are likely to demand clearer explanations of how bids translate into prices.
The outcome of the Amazon case could influence how other commerce media platforms design and disclose their auction systems.
Top Insights
- New York has joined the FTC and 21 states accusing Amazon of manipulating advertising auctions and allegedly overcharging more than 1.2 million advertisers.
- The coalition claims Amazon extracted more than $20 billion, allegedly using undisclosed bidding mechanisms to raise prices above genuine second-price auction outcomes.
- Amazon’s alleged fake second-place bids could have distorted advertiser bidding behavior by making customers believe they would pay only slightly above competing bids.
- Higher advertising costs could affect consumers, as businesses selling groceries, electronics and other products may pass increased marketing expenses into retail prices.
- The case could reshape retail media transparency, putting greater pressure on advertising platforms to disclose auction rules, pricing mechanisms and algorithmic changes.
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