US regulators sue over alleged hidden advertising price inflation on Amazon’s marketplace

Amazon is confronting a major legal challenge from the US Federal Trade Commission (FTC) along with attorneys general representing 22 states, who allege the company concealed substantial hikes to the advertising rates charged on its platform.

The complaint, filed in the US District Court for the Western District of Washington, accuses Amazon of quietly raising the fees paid by more than one million brands and sellers who advertise on its site over a period of seven years. Regulators estimate the practice generated tens of billions of dollars from advertisers who remained unaware of the true cost structure.

More than 500,000 small and medium-sized businesses are reportedly among the affected parties.

The coalition of states bringing the action includes California, New York, Florida, and Illinois.

FTC chairman Andrew N Ferguson stated: “Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers.”

Advertisers traditionally compete for placements such as Sponsored Products, Sponsored Brands, and Display Ads adjacent to Amazon search results, with the highest bidder for each keyword securing the position.

Amazon had assured advertisers that it operated a “second price” auction model, in which the winning bidder pays only one cent more than the second-highest offer—a format widely recognized across the industry as a generalized second-price auction.

The complaint alleges that in practice, Sponsored Products advertisers were charged their full bid roughly 80% of the time, effectively converting the system into an undisclosed first-price auction.

According to the filing, Amazon modified its auction mechanics beginning in 2019 without public notice, introducing an internal adjustment referred to as a “soft reserve price” and employing what internal documentation describes as an “invented auction participant” designed to elevate bidding prices.

The proportion of Sponsored Products advertisers paying their full bid reportedly rose from between 30% and 40% in 2021 to 70% in 2022, reaching approximately 80% by 2024.

Drawing on internal records, the complaint cites an Amazon Ads executive who described the price paid by advertisers as something “not set by an actual bidder” but rather a “proxy second price that we calculate.”

The filing further alleges that Amazon misled advertisers who inquired directly about the change. One internal note reportedly warned that disclosing the practice could cause “irrevocable damage to advertiser trust” and trigger a “downward spiral” in revenue.

Amazon has denied any wrongdoing, asserting that its advertising policies are designed to display the most relevant ads to shoppers.

The company added that the average cost per click paid by advertisers remained stable between 2019 and 2024, while the sales generated from those clicks increased during the same period.

“Amazon’s approach to pricing contradicts any suggestion of consumer harm,” the company stated.

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