FTC and 22 states sue Amazon over alleged secret ad auction surcharges

The Federal Trade Commission and 22 state attorneys general have filed suit against Amazon (NASDAQ: AMZN), alleging the company secretly inflated prices in its online search advertising auctions for more than seven years, according to a statement from the FTC.

The complaint, filed in the U.S. District Court for the Western District of Washington, alleges Amazon concealed surcharges from over one million brands and sellers that advertised on its platform, including more than 500,000 small- and medium-sized businesses. The FTC estimates the scheme extracted tens of billions of dollars from advertisers.

Amazon publicly represented to advertisers that it operated "second price" auctions, where winners pay one cent more than the next highest bidder. The complaint alleges that, beginning in 2019, Amazon added an undisclosed surcharge it internally called a "soft reserve price," effectively converting its auctions into first-price auctions. By 2024, the complaint alleges advertisers paid their own bid amount approximately 80% of the time, up from 30% to 40% in 2021.

The complaint quotes internal Amazon documents referring to the practice as a "clever non-transparent way to charge first price" and acknowledging the use of an "invented auction participant" to increase prices. The FTC characterizes these as shill bids.

FTC Chairman Andrew N. Ferguson said in a statement: "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 complaint also alleges Amazon executives gave misleading answers to advertisers who directly asked whether the auction format had changed, citing internal documents warning that disclosure would cause "irrevocable damage to advertiser trust."

The states joining the FTC include California, New York, Florida, Illinois, Pennsylvania, and 17 others. The FTC commission vote to file the complaint was 2-0.

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