The Federal Trade Commission and 22 states filed suit against Amazon on Aug. 31, alleging the company secretly inflated prices in its online search advertising auctions for more than seven years. The complaint, filed in the U.S. District Court for the Western District of Washington, claims Amazon covertly raised the prices that more than one million brands and sellers paid to advertise, extracting what the FTC says is likely tens of billions of dollars from its advertising customers.
The FTC alleges Amazon ran its ad auctions as "second price" auctions, telling advertisers the winner would pay only "one cent more than the next highest bidder." Instead, the complaint says, Amazon charged Sponsored Products advertisers their own winning bid nearly 80% of the time by 2024, effectively turning the auctions into first-price auctions. The agency says Amazon began adding an undisclosed surcharge, which it internally called a "soft reserve price," starting in 2019.
According to the complaint, Amazon concealed the change because revealing it would cause "irrevocable damage to advertiser trust" and a "downward spiral" of lower bids. The FTC quotes internal documents describing an "invented auction participant" and a "proxy 2nd price that we calculate," which the agency characterizes as shill bids. One Amazon employee is quoted saying the surcharges are "good for Amazon" because "advertisers must pay more for the same advertising."
The complaint alleges the surcharges were ramped up on high-volume shopping days like Prime Day and Black Friday, and that Amazon gave false or misleading answers to advertisers who asked whether the auction format had changed. The FTC says the percentage of time Sponsored Products advertisers paid their full bid rose from between 30% and 40% in 2021 to about 80% in 2024.
The states joining the FTC 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. The Commission vote to file was 2-0. The complaint includes over 500,000 small- and medium-sized businesses among the affected advertisers.
A week earlier, the agency said it planned to submit a stipulated order ending its rental listing case involving Zillow and Redfin.
