The Federal Trade Commission (FTC) has accused Amazon of secretly manipulating the way it charges businesses for advertising on its platform, allegedly extracting more than $20 billion in additional fees from advertisers over several years.
The allegations are at the centre of a new lawsuit filed by the FTC alongside attorneys general from 22 US states. Regulators claim Amazon used a hidden pricing mechanism known internally as a “soft reserve” to increase advertising prices even after its auctions had already determined what advertisers should have paid.
The case could have significant implications for Amazon’s rapidly growing advertising business, as well as thousands of sellers and brands that rely on the platform to reach shoppers.
How Amazon’s Ad Auctions Allegedly Worked
Amazon sells advertising placements that appear alongside search results and product listings on its website and mobile application. Businesses compete for these placements by submitting bids for particular keywords and audiences.
For years, Amazon represented its advertising system as a form of second-price auction. Under such a system, the advertiser who wins an auction does not necessarily pay its maximum bid. Instead, the winning advertiser generally pays slightly more than the next-highest competing bid.
For example, if one business bids $15 for an advertising placement while another bids $12, the winner would ordinarily pay only slightly more than $12 rather than the full $15.
The FTC alleges that Amazon changed this process without adequately informing advertisers.
According to the complaint, Amazon introduced a mechanism known as a “soft reserve price.” Rather than relying entirely on the bids submitted by competing advertisers, the system could allegedly increase the price after the competitive auction had effectively determined the amount.
Regulators argue that this meant advertisers could end up paying significantly more than the price suggested by the auction itself.
A Hidden Price Increase
The FTC claims Amazon internally referred to these changes as “post-hoc pricing adjustments.” In other words, the final price could allegedly be adjusted after the auction had taken place.
The agency says the practice allowed Amazon to capture additional revenue from advertising customers while maintaining the appearance of a competitive auction.
The alleged system reportedly became increasingly important over time. Regulators claim Amazon’s adjustments affected a large share of its advertising auctions, particularly during periods of heavy shopping activity.
The FTC estimates that approximately 1.2 million advertising customers were affected, including more than 500,000 small and medium-sized businesses.
For these businesses, advertising on Amazon is often an important part of their sales strategy. A higher advertising cost can directly affect how much money sellers make on individual products and how much they need to spend to remain visible in Amazon’s search results.
Impact on Small Businesses
The allegations are particularly significant for smaller sellers that may have limited advertising budgets.
Amazon’s marketplace has become highly competitive, with thousands of businesses competing for visibility among millions of products. Sponsored advertisements can determine whether a product appears prominently when customers search for a particular item.
If advertisers believed they were participating in a second-price auction, they could have adjusted their bids and budgets based on the assumption that they would generally pay only enough to beat competitors.
The FTC argues that hidden price increases undermined that assumption.
Regulators also allege that the additional advertising costs were ultimately passed on to consumers. Sellers facing higher marketing expenses could respond by increasing product prices, potentially making the impact of Amazon’s advertising practices visible beyond the businesses directly purchasing advertisements.
Amazon Rejects the Allegations
Amazon has strongly disputed the FTC’s claims and described the lawsuit as misguided.
The company argues that regulators have oversimplified the way its advertising auctions work. Amazon says its advertising system does not determine placements solely on the basis of the highest bid and that factors such as advertising relevance and the value of particular placements also play a role.
Amazon has also disputed the suggestion that its practices systematically harmed advertisers or consumers.
The company maintains that advertisers are aware of the pricing mechanisms associated with its advertising products and argues that its system provides value to businesses by helping them reach customers who are actively searching for products.
Amazon has also pointed to improvements and savings it says advertisers have received through its advertising platform in recent years.
The disagreement means the central question in the case will be whether Amazon merely used legitimate pricing mechanisms within its advertising marketplace or secretly altered the outcome of auctions in a way that advertisers were not aware of.
What Happens Next
The lawsuit now moves the dispute into the legal system, where Amazon will have the opportunity to challenge the FTC’s allegations.
The regulator is seeking legal remedies that could include financial penalties, restitution and changes to Amazon’s advertising practices.
The case could also force greater scrutiny of how digital advertising auctions operate across major technology platforms.
Advertising marketplaces depend heavily on complex algorithms that determine which ads are displayed, which advertiser wins a placement and how much the advertiser pays. Because these systems operate largely behind the scenes, advertisers often have limited visibility into the calculations that determine their final costs.
For Amazon, the stakes are particularly high. Its advertising business has grown into a major source of revenue, placing the company among the world’s largest digital advertising platforms.
The FTC’s allegations therefore go beyond a dispute over individual advertising charges. They raise broader questions about transparency, competition and how much control technology companies should have over pricing systems used by businesses that depend on their platforms.
The $20 billion figure cited by regulators is an allegation, not a final court determination. Amazon has denied wrongdoing, and the legal battle could take years to resolve.
But regardless of the eventual outcome, the lawsuit puts Amazon’s advertising model under an unusually intense spotlight and could prompt advertisers, regulators and other technology companies to take a closer look at how digital ad auctions determine what businesses ultimately pay.
