The Federal Trade Commission and 22 states have disclosed new details in their lawsuit accusing Amazon of secretly inflating advertising prices, including charges as much as 250% above auction results on major shopping days.
The lawsuit, filed in the Western District of Washington on Aug. 31, alleges that for more than seven years, the company has increased Sponsored Ad advertising rates on more than one million brands and sellers and “has likely extracted tens of billions of dollars from unwitting advertising customers.”
Newly unredacted portions of the original complaint released on Nov. 5 claim that Amazon “secretly raises advertising prices by as much as 50% over auction results on ordinary days and by as much as 250% on major shopping days like Prime Day or Black Friday.”
Amazon denied the accusations, arguing that the lawsuit is “misguided.”
“In no scenario does an advertiser pay more than their bid,” the company said in August.
Food and beverage advertisers affected
FTC said Thursday that advertising surcharges were applied to the largest and smallest retailers on its platform, claiming that one unnamed large food and beverage advertiser was subjected to price increases of more than 100% during Amazon’s 2023 Prime Day sale.
“Internally, Amazon acknowledged that its price increases led to decreases in the advertiser’s return on ad spend that were ‘destroying campaign performance,’” FTC said.
Those alleged price increases were applied to a wide range of products, according to New York Attorney General Letitia James, whose office joined the lawsuit. In August, James said in a press release that FTC and the coalition of attorneys general found that those products include “essentials like food, groceries and pharmacy products, which likely leads to higher prices for consumers.”
Auction rigging allegations
At the center of the lawsuit is Amazon’s advertising auction system, which the lawsuit claims the company manipulated.
James’ office explained that the ad prices are set by what are known as “second-price” auctions, where advertisers bid for spots, and the winner pays the minimum amount needed to beat the second-highest-ranked bidder.
“However, in 2018, Amazon began manipulating these auctions by submitting fake second-place bids to charge advertisers more than they should have been paying,” James claimed in the press release. “As a result of Amazon’s scheme, more than 1.2 million advertisers, including hundreds of thousands of small and medium-sized businesses, were overcharged more than $20 billion.”
New Jersey Attorney General Jennifer Davenport, whose state is among the litigants, said those cost increases were hidden from advertisers and that higher advertising costs translated into higher consumer prices.
Davenport’s office explained that in the auctions, advertisers bid on Sponsored Product ads, Sponsored Brands ads and Display Ads to appear alongside the results of consumer searches for a product using a keyword on Amazon’s store.
Ad placements are then auctioned to the highest-ranked bidders for keywords. Amazon’s auction system awards the spot to the highest-ranked bidder, who is then required to pay one cent more than the second-highest.
The FTC alleges that Sponsored Products advertisers paid their full bid amount approximately 80% of the time in 2024, effectively turning the purported second-price auction into a first-price auction.
“Because Amazon controlled both the auction and the limited pricing data available, business customers had no way to verify whether they were being charged a fair, competitive price, and in many instances ended up paying substantially more than anticipated,” Davenport’s office said in a press release.
Amazon’s alleged revenue motive
FTC said Thursday that the alleged overcharging was a deliberate effort to meet revenue targets, according to newly released documents.
“In 2023, Amazon executives discussed the need to find an additional $40 million in revenue to meet corporate financial targets,” FTC said. “Per the complaint, the head of Amazon Ads told Amazon’s senior vice president of ad products and technology in an email that, ‘I’d like to pull out all of the stops (without doing unnatural acts) to close our gaps to plan. I suspect that the entire gap won’t be closed, so whatever can be done with reserves (ideally at least $40MM would be helpful).’”
When advertisers questioned rising costs, Amazon allegedly told them that increased competition was the root of the price increases.
FTC cited internal emails at Amazon, where those on the ad team responded to a complaint with the following message: “After reaching out to the product specialist team we were informed there is not a bug, or a change in auction style, so no worries there. This year the marketplace is even more crowded than any year previous, and we are seeing the spike in CPCs [costs-per-click] as a direct reflection.”
Amazon’s rebuttal
Amazon released a 3,000-plus-word public statement in August, arguing that the lawsuit cites no evidence of consumer price increases and that advertisers were also not harmed.
“From 2019 through 2024, the average cost-per-click for Amazon’s Sponsored Products search ads remained flat adjusted for inflation, while conversion rates grew 24% from 2021 to 2025,” the company said.
Amazon said the auctions look at two things: which ad is most relevant and how much advertisers are willing to pay.
“Like any retail advertising space, whether shelves or end caps, there is a value to specific placements. With relevant ads increasingly winning at prices below market value, we began to test a concept called ‘soft reserve prices,’ a real-time minimum value that seeks to better reflect what each placement is actually worth,” Amazon said. “We also introduced what we call a ‘hard reserve,’ which is the minimum a bid must surpass to enter an auction. The hard reserve helps cover our costs whereas soft reserves represent what we estimate to be the true market value of the ad placement.”
Amazon said advertisers whose winning bids exceed both reserve prices pay the soft reserve. Advertisers whose winning bids exceed the hard reserve but fall below the soft reserve pay their own bid. The company said advertisers never pay more than they bid.
The company also denied claims that company emails revealed a concerted companywide effort to deceive advertisers.
“With a writing culture like we have, people at times use email as a brainstorming and suggestive medium, expressing ideas, testing hypotheses but sometimes expressing thoughts that are either ill-formed or that they change later with the benefit of conversation and other views,” Amazon said. “Most every decision of any import is decided in a meeting and through multiple meetings. A stray email is not indicative of a team’s intent or even collective viewpoint.”
