FTC and 22 States Sue Amazon Over Alleged Hidden Ad Auction Surcharges

The Federal Trade Commission, joined by 22 state attorneys general, has filed a comprehensive lawsuit accusing Amazon of executing a hidden price-inflation scheme within its digital advertising platform. First reported by TechCrunch, the complaint filed Monday alleges that the retail and technology powerhouse spent over seven years secretly escalating ad rates charged to commercial clients. Regulators maintain that the alleged conduct affected more than one million brands and third-party merchants while potentially generating tens of billions of dollars in excess ad revenue for the company.

The state partners aligned with the federal regulator in the legal action comprise 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 lawsuit specifically focuses on ad units situated alongside search results on Amazon's platform, including Sponsored Products, Sponsored Brands, and Display ads.

According to the complaint, Amazon systematically promoted its ad platform to more than 500,000 small and medium-sized enterprises under the premise of a standard second-price auction system. Under this model, the highest bidder wins the auction but is billed just one cent more than the runner-up's bid, rather than being charged their own maximum bid limit. Regulatory officials emphasize that this structure encouraged merchants to submit high baseline bids under the assumption that competitive market dynamics would protect them from paying their maximum threshold unless necessary.

The lawsuit claims that Amazon secretly undermined this structure starting in 2019 by introducing undisclosed price adjustments without informing commercial participants. The complaint states that the company deployed a hidden fee mechanism known internally as a "soft reserve price." Internal company documentation cited in the filing reveals that Amazon utilized what one internal record termed an "invented auction participant"—a synthetic bidder intended to push price floors above levels dictated by legitimate market competition.

Regulators characterize this practice as the digital equivalent of shill bidding, alleging that Amazon manufactured fake competitive benchmarks rather than relying on bids from actual market participants. As a direct consequence of these concealed adjustments, the FTC claims Amazon billed Sponsored Products advertisers their full, unadjusted winning bid nearly 80 percent of the time. This operational shift effectively converted what was marketed as a second-price auction into a first-price auction model without customer consent.

Government attorneys assert that Amazon deliberately hid these changes from marketplace sellers to prevent advertisers from adjusting their strategy. Had the company disclosed the true auction parameters, regulators argue, participating merchants likely would have reduced their maximum bidding limits, thereby curtailing Amazon's high-margin advertising income. Advertising has become an increasingly central driver of Amazon's broader enterprise profitability, yielding more than $68 billion in top-line revenue last year.

Amazon contested the allegations in a public blog post, describing the lawsuit brought by the FTC and state partners as misguided. The company maintained that the regulatory filing fundamentally misunderstands the operational reality of digital advertising markets. Amazon stated that its auction infrastructure evaluates billions of distinct bids across a wide variety of formats and site locations, causing price fluctuations as a matter of routine design, and insisted that advertisers are properly notified about how its pricing frameworks function.