FTC, 22 States Sue Amazon Over Alleged Secret Ad-Surcharge Scheme

The Federal Trade Commission (FTC) and 22 state attorneys general sued Amazon on Monday, accusing the company of running a years-long scheme that secretly increased prices in its online search advertising auctions.

The complaint alleges Amazon concealed unfair charges for more than seven years, and that more than 1 million brands and sellers paid substantially more to advertise on the platform as a result. Officials say the alleged practice likely siphoned tens of billions of dollars from those advertising customers.

“When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering,” FTC Chairman Andrew N. Ferguson said in a statement on Aug. 31. “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 states involved in the case are Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont, and Washington.

Advertisers bid in auctions for sponsored product ads, sponsored brands ads, and display ads that appear alongside search results on Amazon.com, as well as on its mobile app. Amazon told them for years it ran “second-price” auctions, the complaint said, and that the winner would pay only “one cent more than the next highest bidder.”

In practice, according to the complaint, Amazon charged sponsored products advertisers their own winning bid close to 80 percent of the time, effectively rendering the auctions first-price contests.

Amazon described the auctions as generalized second-price, or GSP, auctions, which is the industry standard, the complaint said, and made those claims on its website, in training videos, public materials, and sales presentations.

In first-price auctions, bidders risk overpaying and often shade their bids lower. In second-price auctions, they tend to bid closer to their true value because they pay only what is needed to win.

Starting in 2019, Amazon added an undisclosed surcharge it called a “soft reserve price” internally, according to the complaint. One internal document referred to “a surcharge hidden in it.” Advertisers wound up paying far more than a genuine GSP auction would have required, the complaint said.

Amazon made the change because it was unhappy with advertising revenue, the complaint states. The executive in charge of Amazon Ads explained internally that the price paid “isn’t set by an actual bidder,” but is instead a “proxy 2nd price that we calculate,” according to the complaint. Another document acknowledged use of an “invented auction participant” to push prices higher, it said. Officials call those moves essentially shill bids. One employee noted the surcharges let Amazon get prices “beyond what would be organically achieved through advertiser competition,” the complaint said.

The alleged scheme generated tens of billions of dollars in revenue, affecting more than 500,000 small- and medium-sized businesses, according to the complaint. Price increases impacted ordinary shopping days and grew steeper on high-volume events, such as Prime Day and Black Friday, it said.

Notes from a 2024 discussion among senior executives, including the head of Amazon Ads and the company’s chief digital economist, described Amazon’s “clever non-transparent way to charge first price” as an “incredibly effective way to drive revenue,” the complaint said.

According to the complaint, Amazon knew that revealing the surcharges would spark backlash, and it thus allegedly spent years hiding the changes. Before big shopping days, it carefully ramped up the surcharges to disguise the inflation, the complaint alleged. Internal documents warned that disclosure would cause “irrevocable damage to advertiser trust” and a “downward spiral” of lower bids that would slash revenue, according to the complaint.

The complaint said that in an internal note, Sponsored Products team members wrote that advertisers operated under the assumption Amazon used a GSP auction and “believe Amazon will not simply charge their first price.” Many bid far higher than they were willing to pay, according to the complaint, with the share of times Sponsored Products advertisers paid their full bid allegedly climbing from 30 to 40 percent in 2021 to about 80 percent in 2024.

Amazon allegedly gave false and misleading answers when advertisers asked directly whether the auction format had changed. According to the complaint, one employee said the hidden surcharges are “good for Amazon” because “advertisers must pay more for the same advertising,” and “the benefit to Amazon comes at the cost of advertisers.”

Representatives for Amazon did not immediately return a request for comment about the allegations, but a response was posted on its website calling the lawsuit “misguided.”

The company said “the FTC is relying on a small number of instances where we used simplified explanations about our auctions to allege that there was a concerted company-wide effort to deceive advertisers. This is patently false.”

Amazon also said the FTC had previously raised concerns about its auction descriptions. “We conducted a review to ensure all communications were current and we updated our Amazon Ads Help content to explicitly explain the use of reserve prices. In addition, we now conduct regular cross-team audits and sales trainings to ensure clear and consistent communication about changes to our auction,” it said.

“The evolution of Sponsored Ads has been a journey toward better outcomes for everyone: providing sellers and vendors the ability to promote their products in the Store, highly relevant advertising for shoppers, and stronger sales and performance for advertisers,” the response continued. “We’ve provided advertisers with guidance about our auctions and pricing in the main tools they use to manage their campaigns, and we continue to update that guidance. We look forward to making our case in court.”

The commission voted 2–0 to authorize the complaint, which was filed in the U.S. District Court for the Western District of Washington.