Amazon’s retail media business is facing another regulatory challenge as Nebraska joins the Federal Trade Commission and 21 other states in a lawsuit alleging the company secretly increased advertising costs through its online search auctions. The complaint claims Amazon’s undisclosed pricing practices affected more than one million brands and sellers and generated tens of billions of dollars in additional advertising revenue.

Nebraska Joins FTC and States in Lawsuit Over Amazon Ad Auctions

Amazon’s advertising business is under scrutiny over one of the most fundamental elements of digital advertising: how an auction determines the price an advertiser pays.

Nebraska Attorney General Mike Hilgers has joined a coalition of 22 states and the Federal Trade Commission (FTC) in suing Amazon over allegations that the company secretly inflated prices in its online advertising auctions.

The complaint alleges that Amazon spent more than seven years increasing the amount brands and sellers paid for advertising on its website and mobile application through undisclosed surcharges.

According to the states and FTC, more than one million advertisers were affected, including more than 500,000 small and medium-sized businesses. The complaint alleges that the practices generated tens of billions of dollars in additional revenue for Amazon.

These remain allegations in an ongoing lawsuit, not findings of fact by a court.

The dispute centers on Amazon’s auction model

Amazon sells Sponsored Products, Sponsored Brands and Display Ads through auctions triggered by searches on its marketplace.

The complaint alleges that Amazon represented these as second-price auctions, a widely used model in digital advertising in which the winning advertiser generally pays a price based on the next-highest competing bid rather than its own maximum bid.

That distinction has a direct impact on how advertisers set bids.

In a first-price auction, the winner pays its own bid. Advertisers therefore have a strong incentive to estimate the minimum price necessary to win and reduce their bids accordingly.

In a second-price auction, advertisers can bid closer to the actual value they place on a particular placement because they expect the final price to be determined by competition.

The FTC and states allege that Amazon told advertisers its auction system followed the second-price model while increasingly charging them close to their full winning bids.

If proven, that would represent a substantial difference between the auction advertisers believed they were entering and the pricing mechanism allegedly used by the platform.

Hidden “soft reserve” prices are at the center of the complaint

According to the complaint, Amazon introduced an undisclosed pricing mechanism in 2019 that it internally called a “soft reserve price.”

The alleged surcharge allowed Amazon to raise the final advertising price beyond what the underlying auction would have produced.

The complaint alleges that the pricing mechanism was not transparently communicated to advertisers and that Amazon continued presenting its auction system as a second-price model.

The effect allegedly became increasingly pronounced.

According to the government’s complaint, Sponsored Products advertisers paid their own winning bid approximately 30% to 40% of the time in 2021, rising to around 70% in 2022 and approximately 80% in 2024.

That progression is central to the government’s argument that Amazon’s auctions increasingly functioned like first-price auctions.

Why the allegations matter for advertisers

Auction mechanics are not an academic detail for brands and sellers.

Advertisers use auction rules to determine how aggressively they bid for high-value keywords and product placements. If the expected pricing mechanism changes, advertisers can unintentionally spend more than their campaign models anticipate.

The complaint argues that Amazon benefited from advertisers continuing to believe they were participating in second-price auctions.

The government alleges that advertisers could have reduced their bids had they understood that Amazon was routinely charging amounts close to their full bids.

That would have potentially reduced Amazon’s advertising revenue, creating an incentive for the company to conceal the alleged changes, according to the complaint.

Prime Day created a high-stakes testing ground

The lawsuit also focuses on major shopping events.

The coalition alleges that Amazon increased its surcharges around periods of exceptionally high shopping activity, including Prime Day and Black Friday.

For advertisers, those periods are among the most competitive moments of the retail calendar. Brands and marketplace sellers typically increase advertising budgets when consumer purchasing intent is high.

If auction prices rise during those periods, advertisers can face significantly higher customer-acquisition costs at precisely the time they are trying to maximize sales.

The complaint alleges Amazon monitored and adjusted its surcharge system in response to revenue targets while attempting to prevent advertisers from recognizing the underlying pricing changes.

Retail media’s transparency problem

The allegations arrive as retail media becomes an increasingly important component of digital advertising.

Amazon’s advertising model is particularly powerful because the company controls a large-scale commerce environment where consumers search for products, encounter sponsored placements and complete purchases.

That gives Amazon access to valuable first-party signals around shopping intent.

It also creates a high degree of vertical integration: the platform can control the inventory, auction, audience signals, measurement and transaction environment.

That structure is attractive to advertisers because it can provide a direct connection between advertising and sales. But it also creates questions about how independently advertisers can verify the auction mechanisms used to price that inventory.

The issue is not unique to Amazon. Other retail media networks are developing their own advertising marketplaces, making auction transparency, measurement and pricing disclosure increasingly important across the sector.

What the lawsuit could mean for AdTech

The case could have consequences beyond Amazon if regulators establish new expectations for how advertising platforms must disclose auction mechanics.

Digital advertising depends heavily on automated auctions. DSPs, ad exchanges, SSPs and retail media networks use algorithms to determine which advertiser wins inventory and what price is paid.

Advertisers generally see the outcome rather than every component of the underlying calculation.

That makes trust essential.

For enterprise advertising teams, the lawsuit reinforces the value of scrutinizing effective media costs, bid behavior, attribution and platform disclosures rather than assuming that two platforms using similar auction terminology necessarily operate in the same way.

It could also increase pressure on retail media companies to provide greater transparency around auction design and pricing.

For now, the legal battle remains at an early stage. But the central issue is already clear: as more advertising budgets move into closed commerce ecosystems, advertisers want greater certainty about how the price of each impression is determined.

Market Landscape

Retail media has become a major growth area in digital advertising because platforms can combine first-party consumer data, commercial intent and advertising inventory.

Amazon’s model is particularly influential because advertising and commerce operate within the same ecosystem. The lawsuit therefore raises questions that could affect the wider retail media market, including how platforms disclose auction rules, how advertisers verify pricing and whether proprietary algorithms should face greater regulatory scrutiny.

For advertisers, transparency is becoming increasingly important as retail media budgets expand. Brands are not simply evaluating reach; they are examining incremental sales, customer acquisition costs, return on ad spend and the mechanics behind those results.

The Amazon case could ultimately become a reference point for how regulators view auction-based advertising on closed platforms.

Top Insights

• Nebraska has joined the FTC and 21 other states in challenging Amazon’s alleged hidden advertising surcharges affecting more than one million brands and sellers.
• Amazon allegedly shifted its auction economics, charging advertisers their own winning bids more frequently despite representing its system as second-price auctions.
• The alleged pricing changes accelerated after 2019, with full-bid payments reaching approximately 80% for Sponsored Products advertisers by 2024.
• Prime Day and Black Friday are central to the allegations, with regulators claiming Amazon increased surcharges during high-volume shopping periods.
• The lawsuit could reshape retail media transparency, potentially increasing scrutiny of auction algorithms, pricing disclosures and advertiser measurement across commerce platforms.

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