• by Laurie Sullivan , over 1 hour ago

The Federal Trade Commission (FTC) and 22 states alleged Amazon has been overcharging advertisers since 2018 or 2019 by representing that it holds a "second price auction," but charges advertisers higher prices after the auction ends.

The suit filed Monday against Amazon alleges the company tried to deceive advertisers by secretly inflating online search ad auction prices.

The complaint alleges that for more than seven years Amazon increased prices paid by "more than one million brands and sellers" that were required to pay to advertise on Amazon's platform. The complaint alleges Amazon’s practice likely cost companies "tens of billions of dollars" extra in advertising costs.

Amazon internally refers to the differences between the actual auction prices and the prices it charges advertisers as an auction "surcharge," according to the document. 

The suit alleges Amazon’s fees or surcharges are disclosed to its customers, but it does not disclose its auction pricing has “a surcharge," therefor the document states that surcharge is hidden. 

Individual sellers in Amazon ad forums frequently voice frustrations about high and hidden advertising costs, as well as unannounced features like "Sponsored Ask Alexa" ads.

Antidotal forum discussions by advertisers outline Amazon's ad bidding costs. These discussions emerged as early as 2017, but evolved into what the FTC and 22 states noted in the lawsuit.

Amazon issued a formal statement Monday shortly after the filing. The company said it had properly described to advertisers how its auctions work, and how it improved and evolved over time. It has made improvements to its ad technology that delivered more relevant ads to consumers and improved the value of advertising to businesses that sell on its platform.

“The FTC claims advertisers were harmed because they didn’t understand how our auction worked and therefore overpaid,” according to Amazon’s blog post, which suggests the FTC and 22 states have a flawed premise for the lawsuit. “Not only do we properly describe our pricing and auctions to advertisers, but this claim fundamentally misunderstands how advertisers behave. Advertisers adjust bids based on real-world outcomes, not descriptions of auction mechanics.”

Amazon estimates advertisers have saved more than $8 billion from 2021 to 2025 as a result of Amazon incorporating ad relevancy into its auction versus selecting ads on bid alone.

From 2019 to 2024, the average winning bid for Sponsored Products search ads fell 50%, demonstrating that highly relevant ads were increasingly winning placements with lower bids, Amazon wrote.

The lawsuit sees it differently. While the advertising storefronts hurt brands, third-party sellers, and independent merchants, which were overcharged by auction manipulation, the FTC argues the true financial damage directly hurts consumers.