Amazon faces multi-state lawsuit over hidden ad pricing
The Federal Trade Commission and 22 states have sued Amazon, alleging it secretly raised advertising costs for over a million sellers. The complaint claims Amazon used a hidden surcharge and a simulated bidder to convert its second-price auction into a first-price one, generating tens of billions in extra revenue. Amazon has rejected the allegations as misguided.
The lawsuit targets Amazon's advertising auction system, specifically its Sponsored Products, Sponsored Brands, and Display ads. The FTC alleges Amazon marketed a second-price auction model but secretly implemented changes, including a hidden surcharge and a simulated bidder, to inflate what advertisers ultimately paid. This allegedly pushed advertisers toward paying their full winning bid roughly 80 percent of the time.
Amazon generated over $68 billion in advertising revenue last year. The company has rejected the allegations, arguing the complaint misunderstands how advertisers operate and noting that its auction system evaluates billions of bids across various placements and formats, with prices naturally varying as a result.
This case could reshape how digital advertising auctions are disclosed across the industry. Small and medium businesses that rely on Amazon's marketplace for visibility may have overpaid significantly, potentially affecting their pricing and profitability. If the allegations hold, it may prompt regulators to scrutinize other platforms' auction practices, while advertisers could become more cautious about trusting opaque pricing systems. The outcome may also influence how companies communicate auction mechanics to their customers going forward.