FTC suit targets Amazon ad auction practices

The Federal Trade Commission and a coalition of 22 state attorneys general have brought a lawsuit against Amazon (AMZN) alleging that the company secretly inflated prices in its online search advertising auctions. The complaint targets Amazon’s use of what regulators describe as hidden surcharges and a "soft reserve" mechanism within its "generalized second-price" auction model for Sponsored Products ads.

Regulators allege that the soft reserve effectively inserted a proxy second-price bidder into auctions, allowing Amazon to raise the final cost-per-click charged to advertisers. The lawsuit claims these practices were applied over a seven-year period and were not clearly disclosed to advertisers participating in the platform’s ad marketplace.

Coverage of the case reports that regulators estimate Amazon’s disputed ad-auction practices generated roughly $20 billion in additional charges from advertisers. The complaint materials are extensive, reportedly supported by more than 1.5 million pages of internal Amazon documents and related evidence.

The lawsuit further alleges that Amazon at times charged advertisers their full winning bid close to 80% of the time, rather than the lower second-price level advertisers might have expected from the auction label. Regulators characterize the performance premiums and reserve-like adjustments in the auctions as mechanisms that systematically raised advertiser costs.

Amazon strongly disputes the allegations and has issued a detailed response defending its ad auction practices. The company states that in no scenario does an advertiser pay more than the bid it submitted, arguing that its pricing is consistent with the parameters advertisers set when they participate in auctions.

Amazon also says that, on an inflation-adjusted basis, the average cost-per-click for Sponsored Products search ads remained flat from 2019 through 2024. It reports that conversion rates on these ads increased 24% between 2021 and 2025, which it presents as evidence that advertisers are receiving improved performance over time.

The company further claims that weighting ad relevance, rather than relying solely on bid size, produced approximately $8 billion in savings for advertisers between 2021 and 2025. Amazon notes that about 92% of selected Sponsored Products ads in 2024 were not the highest bid, framing this as support for its focus on relevance in ad selection.

The dispute centers on how Amazon’s ad auction mechanics are structured and described to advertisers, particularly the role of performance premiums and reserve-like adjustments. Regulators argue that these mechanisms operated as undisclosed tools to raise prices, while Amazon maintains that its system is transparent and aligned with advertiser interests.

The case has drawn comparisons in coverage to other recent regulatory actions involving large digital advertising platforms, highlighting broader scrutiny of auction transparency and pricing in online ad markets. The outcome of the lawsuit will hinge on how courts assess the design, disclosure, and economic effects of Amazon’s advertising auctions as described in the extensive complaint and Amazon’s response.