FTC Sues Amazon Over Alleged Hidden Advertising Surcharge Scheme

The Federal Trade Commission (FTC) and 22 U.S. states have sued Amazon, accusing the company of secretly increasing advertising costs by changing its online ad auction system.

The lawsuit alleges that Amazon operated a hidden advertising surcharge scheme affecting more than 1 million brands and sellers. The FTC claims the practice generated billions of dollars in additional advertising revenue by increasing the prices businesses paid on Amazon’s ad platform.

FTC Challenges Amazon’s Advertising Auction Practices

According to the FTC’s complaint, the case focuses on Amazon’s Sponsored Products, Sponsored Brands and Display advertising services that appear across its marketplace.

The agency alleges Amazon told hundreds of thousands of small and medium-sized businesses that its advertising system used a second-price auction model. Under that system, advertisers expected to pay only slightly more than the next-highest bidder rather than their full bid amount.

The FTC claims that Amazon changed the system in 2019 by adding an internal pricing mechanism called a “soft reserve price.” The agency alleges the company used an artificial auction participant to increase winning prices beyond what normal competition would have produced.

According to the lawsuit, the change meant Sponsored Products advertisers paid close to their full winning bid around 80% of the time, effectively changing the auction model from a second-price system into a first-price system without clearly informing advertisers.

Amazon Disputes FTC Allegations

The FTC claims Amazon made the changes to increase advertising revenue and kept the pricing mechanism hidden because advertisers could have adjusted their bidding strategies if they knew the true auction process.

Amazon generated more than $68 billion in advertising revenue last year, according to company financial figures reported by Yahoo Finance.

Amazon rejected the FTC’s allegations, describing the lawsuit as misguided. In its response, the company said the complaint misunderstands how advertising auctions operate and argued that its system evaluates billions of bids across different placements and formats.

Amazon said advertisers are properly informed about how its advertising pricing works and that prices can vary based on competition, placement and other factors.

States Join FTC Action Against Amazon

The lawsuit was joined by 22 states, including California, New York, Texas, Florida, Washington and others. The case adds to broader regulatory scrutiny of major technology platforms and their business practices.

The FTC’s action now moves the dispute into the legal process, where Amazon and regulators will argue over how the company’s advertising auction system operated and whether advertisers were properly informed about pricing changes.