FTC Accuses Amazon of Running a ‘Covert Advertising Surcharge Scheme’ in Recent Lawsuit

The Federal Trade Commission (FTC), along with 22 states, has now filed a lawsuit against Amazon, alleging that the company has been secretly imposing higher fees on businesses for advertising on its platform.

The lawsuit, submitted on Monday, claims that Amazon has been gradually increasing the fees that advertisers are required to pay through its online advertising auctions for over seven years. According to the complaint, this alleged practice has affected over one million brands and sellers, potentially resulting in tens of billions of dollars in additional revenue for Amazon.

The collaboration between the FTC and the 22 states includes 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 focus of the lawsuit is on Amazon’s Sponsored Products ads, Sponsored Brands ads, and Display ads that accompany search results. The FTC alleges that Amazon misled over 500,000 small and medium-sized businesses by promoting a “second-price” auction model, where the winning bidder was supposed to pay just one cent above the next highest bid, rather than their full bid amount. Advertisers were motivated to place higher bids under the impression that their actual costs would remain low.

However, the FTC claims that since 2019, Amazon has made a “deceptive” change without notifying advertisers. The company allegedly introduced a hidden fee, referred to internally as a “soft reserve price,” and used what one internal document described as an “invented auction participant”—a fictitious bidder meant to inflate prices beyond what legitimate competition would have produced. The complaint asserts that this action represented a shill bid: rather than prices coming from real competing advertisers, Amazon manipulated the bidding process to artificially elevate them. As a result, the FTC argues that Sponsored Products advertisers were charged their full winning bid nearly 80% of the time, effectively converting what was marketed as a second-price auction into a first-price auction.

The FTC contends that Amazon implemented this change to increase its advertising revenue while concealing it to dissuade advertisers from reducing their bids, which could have adversely affected that revenue.

Last year, Amazon generated over $68 billion in advertising revenue.

In a blog post, Amazon described the FTC’s lawsuit as “misguided,” claiming that the complaint “fundamentally misunderstands how advertisers operate.”

The company also emphasized that its auctions handle billions of bids across various placements and formats, leading to natural price fluctuations, and assured that advertisers are “properly” informed about the pricing framework.