The Federal Trade Commission (FTC) and 22 state attorneys general are suing Amazon, alleging the company employed a “secret ad surcharge” to systematically drive up advertising prices on its platform. FTC Chairman Andrew Ferguson stated that these inflated costs were largely passed on to American consumers, violating the FTC Act and numerous state laws.
Alleged Auction Manipulation
The core of the complaint involves Amazon’s “second price” auction system. In a standard model, the winning bidder pays only one cent more than the second-highest bid. However, the FTC alleges that since 2019, Amazon has been manipulating these outcomes. According to the lawsuit, Amazon replaces the legitimate auction price with a higher figure designed to maximize corporate profit and decrease advertiser efficiency.
The complaint cites internal communications from Amazon’s Senior Vice President of Amazon Ads, who explained that the second price in these auctions is not set by a real bidder, but is instead a “proxy 2nd price that we calculate.”
Financial Impact and Amazon's Defense
The FTC claims this practice has “illegally extracted over 20 billion dollars” from advertisers. Amazon has responded by calling the lawsuit “misguided.” In a blog post, the company asserted that from 2019 to 2024, the average winning bid for its Sponsored Products search ads actually fell by 50%. Amazon also disputed the FTC’s assertion that advertising costs led to higher prices for consumers.
