The FTC and 22 state attorneys general filed the Amazon ad surcharge lawsuit on August 31, alleging Amazon secretly inflated prices in its search ad auctions for over seven years, in a scheme the FTC says has likely extracted tens of billions of dollars from its advertising customers. That figure will lead most coverage. The mechanism is narrower: a first-price auction that, per the complaint, only worked because advertisers still believed it was second-price.
What the complaint alleges Amazon did
For years, per the complaint, Amazon told advertisers running Sponsored Products, Sponsored Brands and Display ads that its auctions were “second price”: the winner would pay “one cent more than the next highest bidder.” The complaint puts the affected pool at more than a million brands and sellers, including over 500,000 small and medium-sized businesses. Starting in 2019, Amazon allegedly added an undisclosed markup to the pricing calculation; one internal document quoted in the complaint said the pricing had “a surcharge hidden in it.” The suit, filed on a 2-0 Commission vote in the Western District of Washington, alleges deceptive and unfair practices, per the FTC’s press release announcing the suit.
Why the alleged concealment is the mechanism, not a detail
Auction theory explains why belief mattered as much as the rule. Per the FTC, in repetitive first-price auctions for the same goods bidders will often “reduce their bid to determine what the minimum amount needed to win future auctions might be,” called bid shading. Second-price auctions remove that pressure: bidders are “more likely to bid higher, closer to their true value,” because the rules cap what the winner pays. The complaint quotes the executive in charge of Amazon Ads acknowledging the price advertisers pay “isn’t set by an actual bidder,” but a “proxy 2nd price that we calculate.” Another document quoted in the complaint says Amazon uses an “invented auction participant” to raise prices; the complaint alleges the invented participant and the proxy price are “essentially shill bids.”
Notes from a 2024 discussion between senior executives, including the head of Amazon Ads and Amazon’s Chief Digital Economist, acknowledged that Amazon’s “clever non-transparent way to charge first price” had been an “incredibly effective way to drive revenue.”
— FTC press release, describing documents quoted in the complaint
The share of bids that stopped being second-price
Per the complaint, the share of the time Sponsored Products advertisers paid the amount of their bid, the exact outcome a second-price auction exists to prevent, ran between 30% and 40% in 2021, climbed to 70% in 2022, and reached approximately 80% in 2024. The FTC’s announcement gives no figure for 2020 or 2023, and no equivalent share for Sponsored Brands or Display Ads. If those allegations hold, the second-price promise described at most one auction in five by 2024.
Why Prime Day and Black Friday distort the comparison too
Amazon allegedly didn’t apply the surcharge evenly. The complaint says Amazon “carefully ramps up surcharges” ahead of high-volume days like Prime Day and Black Friday, layering steeper increases on the year-round baseline. If that holds, comparing peak-period CPC to the same period a year earlier reflects the surcharge curve as well as competition, on top of the shift Prime Day already causes to the year-over-year reporting baseline.
What is Amazon’s “soft reserve price”?
Per the complaint, “soft reserve price” is Amazon’s internal name for the undisclosed surcharge it allegedly began adding to its ad auction pricing in 2019, without notifying advertisers. One internal document quoted in the complaint describes the result as having “a surcharge hidden in it.” This is an allegation in a filed complaint, not a finding; Amazon disputes it and has not been found liable.
The response the complaint says Amazon worked to prevent
The complaint quotes Amazon employees on exactly what disclosure would break: advertisers, per one employee quoted, are “operating under the assumption that Amazon uses a GSP auction,” so “many advertisers bid far higher than what they are willing to pay … because they assume [the auction is] a GSP.” Internal documents, per the complaint, warned disclosure would trigger a “downward spiral” of falling bids. That spiral describes the response available to an advertiser today: stop assuming a ceiling, and test bids down to find the floor empirically. Microsoft Advertising is separately removing the Max CPC field from new non-portfolio campaigns on three standalone bid strategies from October 1, a bid-cap field rather than a change in how its auction prices. Either way, the complaint alleges the assumed ceiling was itself expensive.
Amazon’s response, and what happens next
FTC Chairman Andrew Ferguson said: “Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers.” Amazon, per CNBC, called the lawsuit “misguided”, said the complaint “fundamentally misunderstands how advertisers operate”, and said the suit includes no evidence that consumer prices rose. Amazon said its systems saved advertisers $8 billion between 2021 and 2025, a figure from Amazon, not the FTC, and that it will make its case in court. The FTC and 22 states seek civil penalties, restitution and other unspecified damages.
