In the catalog business, the price of a page was printed on the rate card. The advertiser knew the cost before the ink dried. The complaint now before the U.S. Federal Trade Commission describes the opposite arrangement.
The FTC, joined by 22 state attorneys general, accuses Amazon of introducing a hidden markup — a 'soft reserve price' — and using it to secretly overcharge advertisers 11. The action followed an FTC investigation that began in 2024 19,38. It describes a roughly seven-year scheme 11 in which more than 1.2 million advertisers, including over 500,000 small and medium-sized businesses, allegedly paid surcharges totaling more than $20 billion 11. The stakes reach beyond damages. The coordinated action targets Amazon's Sponsored Ads business, a core high-margin revenue stream 24, and puts at issue the integrity of auction mechanics the FTC identifies as a foundational component of the digital advertising ecosystem 23.
My maxim holds that half of advertising is wasted and no one knows which half. This complaint alleges something worse: waste that was engineered, then concealed. The question is not whether the auction works. It is how the advertiser is supposed to know what it paid — and why it could not.
How an Auction Is Supposed to Work
Amazon's advertising auctions were originally designed as second-price auctions: the winner pays the runner-up's price, not its own bid 9. The design rewards honest bidding. You bid what the placement is worth, and the format protects you from your own enthusiasm.
The complaint alleges Amazon misrepresented its Sponsored Products, Sponsored Brands, and Display auctions as second-price systems 40. According to the FTC, Amazon instead replaced the auction-determined price with a 'proxy 2nd price' of its own calculation 29, inserted hidden floors internally described as 'post-hoc pricing adjustments' 26, and in some cases set a higher minimum price only after bidding had ended 26. The complaint further alleges the company planted an invented participant — a fake bidder, or 'shill bid' — inside its own auctions starting in 2019 11, and used the winning advertiser's own bid, which should have functioned only as a cap, to help push the final charge above the price established by competing ads 36.
The cumulative effect, regulators contend, was to convert nominally second-price auctions into first-price auctions in practice 9,40. Advertisers bidding as if in a truthful second-price format paid more than they would have if the format had been disclosed 17,38. In a department store, this is the equivalent of quoting one price at the counter and ringing a different one at the register. The goods did not change. The price did.
A Timeline That Demands Care
The record is not tidy. Some accounts describe undisclosed artificial bids in the auctions since 2018 38; others describe manipulation beginning in 2019 34. The complaint's own product-level detail points to a phased rollout: reserve pricing in Sponsored Brands from 2018 4 and in Sponsored Products from mid-2019 4, with alleged overcharges running from 2018 to the filing date 6. The discrepancies matter. In a deception case, the start date is part of the proof.
The Arithmetic of the Alleged Overcharge
Full-bid payments allegedly stood at 30–40% of auctions in 2021 27. By 2024, roughly 80% of winning bidders were paying nearly their full bid price 35. The complaint elsewhere puts the full-bid rate at 79% 1,2,3,18 and estimates intervention in 70–80% of sponsored product auctions 25.
The timing sharpened the take. Surcharges were allegedly raised more aggressively around Prime Day and Black Friday 22,27,40, where the FTC says cost-per-click increased by 50% on peak shopping days 12. To a merchant, a surcharge timed to the holiday calendar does not read as a demand adjustment. It reads more like extraction scheduled for peak traffic.
The alleged proceeds are large by any measure. Undisclosed surcharges across Sponsored Products, Sponsored Brands, and Display auctions are said to have generated tens of billions of dollars 40, with more than $20 billion extracted since 2019 — a figure the complaint itself notes has not been adjudicated 36. The affected base spans more than one million brands and sellers 40 across what regulators describe as billions of rigged auctions 19.
The Concealment Record
What converts an overcharge into a deception case is the paper trail. Internal documents cited by the FTC reportedly described the surcharges as 'hidden' and acknowledged that disclosure would damage advertiser trust and lower bids 38, producing prices beyond what can be achieved through advertiser competition 40. One internal warning described proposals to tune parameters away from a generalized second-price auction while hoping advertisers would not notice 31. Other documents conceded that advertisers 'may not be expecting' the adjustments 23.
The charges were allegedly ramped up gradually to avoid detection 22. Senior executives are said to have actively concealed the practice 40. Advertisers who asked directly whether the auction had changed received false or misleading answers 11. The complaint quotes senior advertising executive Paul Kotas referring to a 'proxy 2nd price that we calculate' 35 and cites an employee's statement that 'advertisers must pay more for the same advertising' 20. FTC scrutiny reportedly prompted Amazon to review its own auction descriptions 20.
In my trade, you print the price and stand behind it. When the price changes after the customer bids, and the answer to a direct question is no, the customer is no longer buying an auction. He is buying a story.
Who Ultimately Paid: The Pass-Through Question
The FTC extends the alleged harm past the advertiser's invoice. A significant portion of the inflated advertising costs, it contends, was passed through to shoppers in higher product prices 33,34. Chairman Andrew Ferguson says the dynamic touched essential goods such as food and groceries 23 and characterized its impact as 'staggering' 30. Consumer protection bureau head Chris Mufarrige said the practices raised prices for consumers and disadvantaged businesses dependent on Amazon's marketplace 23.
This is the case's most contested element, and I treat it with corresponding caution. Amazon disputes that its advertising practices raised retail prices 24,29, and the consumer-harm claim is contested within the reporting itself 4. Pass-through is a plausible chain — ad cost flows into cost of goods, cost of goods flows into the ticket — but plausibility is not proof.
Amazon's Answer: Two Ledgers, One Dispute
Amazon rejects the suit on both facts and theory. It calls the lawsuit misguided and argues the FTC fundamentally misunderstands how advertisers behave 29, dismissing the allegation of a companywide effort to deceive as 'patently false' and based on a handful of simplified communications 32.
Its most substantive rebuttal is empirical: advertisers bid on actual results, and the average winning bid fell by half between 2019 and 2024 11.
Here the two sides' metrics stand in direct conflict 35. The FTC counts how often winners pay nearly their full bid; Amazon reports what the average winner paid. The FTC also directly contradicts Amazon's claim that cost-per-click prices remained stable 25. An average and a share can both be true and still tell different stories — the share measures how often the ceiling binds; the average smooths everything beneath it. I have watched averages flatter a merchant's story for a long time. How this statistical battle resolves may determine whether the conduct reads as systematic extraction or as benign price compression.
What Is at Stake
Legally, the complaint rests on unfair and deceptive conduct under Section 5 of the FTC Act 28. The core allegation is misrepresentation: Amazon represented its auction as essentially second-price while allegedly using undisclosed mechanisms that caused winners to pay substantially more 37.
The remedies and risks are material. An adverse outcome could bring large fines, mandated structural changes to the ad-auction systems, and reputational damage 15. If the FTC prevails, court orders could force Amazon to change or disclose its pricing practices 27. Because the FTC's framing puts roughly $20 billion in surcharge revenue at risk 16, a proven case followed by reform could alter the underlying monetization architecture of the advertising revenue stream 7.
Secondary effects compound the exposure. Advertiser trust and marketplace-seller relationships could suffer if the allegations are substantiated 15. Legal experts suggest the case could reshape transparency requirements for online advertising auctions more broadly 33. Amazon faces risks of advertiser pushback, reduced ad spend, or migration to competing platforms 8. The advertising industry has been comparatively silent so far 35, though outside analysts see the complaint as raising basic questions about whether advertisers paid more than they realized 39. The dispute is also the latest in an ongoing series of confrontations between Amazon and the FTC 14. Given allegations that the advertising-pricing structure materially affects revenue trajectories 40, the action warrants monitoring as a fundamental catalyst 7. If disclosure is ordered, every bidder finally sees the reserve. That is when we learn which half was wasted.
The Bottom Lines
- Scale is consistent across reporting but unproven. The more-than-$20-billion and roughly-1.2-million-advertiser figures recur consistently across accounts 5,10,11,13,21, yet the extraction total remains unadjudicated 36.
- Deception, not reserve pricing per se, is the legal fulcrum. The Section 5 case turns on the concealment record — internal admissions that the surcharges were 'hidden' 38 and false answers given to direct advertiser questions 11.
- Financial exposure touches a recurring, high-margin stream. Beyond penalties, mandated disclosure or structural reform could reprice roughly $20 billion of surcharge revenue 7,16.
- The metrics battle will shape perception regardless of the legal outcome. Amazon's claim that average winning bids halved from 2019 to 2024 11 collides with FTC data showing roughly 80% of winners paying nearly full bid by 2024 35, and the dispute already carries advertiser-backlash and spend-migration risk 8.
One question should follow any advertiser reading this to the next negotiation: when the invoice arrives, how do you know what you actually bought — and how would you know if the price had changed?