US Regulator, 22 States Sue Amazon Over Alleged Hidden Ad Surcharges
The Federal Trade Commission (FTC) and attorneys general from 22 U.S. states have filed a lawsuit against Amazon. They allege the e-commerce giant overcharged advertisers in its search ad auctions for more than seven years.
The U.S. Federal Trade Commission (FTC) and attorneys general from 22 states have filed a lawsuit against Amazon, alleging the company overcharged advertisers in its search advertising auctions for more than seven years. The complaint claims Amazon covertly increased advertising costs, extracting tens of billions of dollars from advertisers without their knowledge.
The lawsuit, filed in the U.S. District Court for the Western District of Washington, centers on Amazon's advertising auction practices. The company had previously informed advertisers it used a "second-price" auction, where the highest bidder wins and pays one cent more than the next-highest bid. This model, known as a generalized second-price (GSP) auction, is an industry standard that typically encourages bidders to bid their true value.
However, the complaint alleges that Amazon changed its auction rules around 2019 without notifying advertisers. Instead of a true GSP auction, Amazon allegedly charged advertisers their own winning bid approximately 80% of the time. This effectively turned the auction into a first-price system and included an undisclosed markup, internally referred to as a "soft reserve price." Internal documents cited in the filing suggest Amazon acknowledged this was a "clever non-transparent way to charge first price."
According to the FTC, this scheme generated tens of billions of dollars in revenue by raising prices, including larger increases during high-traffic events like Prime Day and Black Friday. The complaint states Amazon expected backlash if advertisers discovered the change and concealed the price inflation for years. The company allegedly provided misleading answers to advertisers who questioned the auction format, fearing "irrevocable damage to advertiser trust."
The suit involves states including Alaska, Arizona, California, Colorado, Florida, and New York. The FTC and the states argue that Amazon's actions not only deceived advertisers but also harmed competition and undermined advertiser confidence in the platform. The allegations are based on internal Amazon documents and employee statements that allegedly reveal a deliberate strategy to maximize revenue through hidden fees.