The Federal Trade Commission and 22 states have filed a lawsuit against Amazon, accusing the company of secretly inflating advertising costs for businesses on its platform. The complaint, filed Monday, alleges that Amazon spent more than seven years quietly raising the prices that advertisers paid through its online ad auctions. According to the FTC, the practice affected more than one million brands and sellers and may have generated tens of billions of dollars in extra revenue for Amazon.
The states joining the FTC in the lawsuit 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 case centers on Amazon’s Sponsored Products ads, Sponsored Brands ads, and Display ads that appear alongside its search results. The FTC claims that Amazon told more than 500,000 small and medium-sized businesses that it ran a second-price auction, where the winning advertiser pays just one cent more than the next-highest bid rather than the full amount of their own bid.
Because businesses believed they would only pay slightly more than the runner-up, they had an incentive to bid high, trusting the system to keep actual costs in check. However, the FTC alleges that starting in 2019, Amazon made a surreptitious change without telling advertisers. It added a hidden surcharge that Amazon internally called a soft reserve price and used what one internal document called an invented auction participant - a fake bidder - to push prices higher than true competition would have produced. The complaint alleges this amounted to a shill bid, where Amazon itself manufactured a higher number for advertisers to beat rather than letting the price come from a real competing advertiser.
As a result, the FTC claims Amazon charged Sponsored Products advertisers their own full winning bid close to 80% of the time, effectively turning what was marketed as a second-price auction into a first-price one. The FTC says Amazon made this change because it wanted more advertising revenue and kept it hidden because disclosing it could have led advertisers to lower their bids, which would have cut into that revenue. Amazon generated more than $68 billion in advertising revenue last year.
In a blog post, Amazon described the FTC’s lawsuit as misguided, arguing that the complaint fundamentally misunderstands how advertisers operate. The company added that its auctions evaluate billions of bids across different placements and formats, so prices naturally vary, and advertisers are properly informed about the pricing system. The lawsuit marks the latest regulatory challenge for Amazon, which has faced increased scrutiny from federal and state authorities over its business practices in recent years.
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