FTC Sues Amazon Over Alleged $20 Billion Advertising Surcharge Scheme

The Federal Commerce Fee and 22 state attorneys common sued Amazon on Monday, alleging the retailer secretly overcharged advertisers by modifications to its promoting auctions.

According to the FTC, Amazon modified the way it decided costs with out adequately disclosing these modifications to advertisers. The company estimates the apply generated greater than $20 billion in extra promoting prices.

Amazon disputes the allegations, arguing its public sale modifications improved advert efficiency and in the end saved advertisers cash.

On the heart of the case is a pricing mechanism Amazon launched in 2019 referred to as a “smooth reserve value” and the way Amazon defined it to advertisers.

What The FTC Is Alleging

Amazon had lengthy described its promoting auctions as a type of second-price public sale, which isn’t distinctive to Amazon.

Digital promoting platforms have broadly used second-price auctions, and Google Search follows an identical common precept. An advertiser units a most bid however usually pays much less based mostly on the competitors and different public sale elements.

Beneath Amazon’s conventional mannequin, advertisers would equally submit the utmost quantity they’re keen to pay for a click on, however the profitable advertiser usually paid solely sufficient to beat the next-highest ranked competitor.

The FTC alleges Amazon modified the way it calculated that value starting in 2019.

Amazon launched what it calls a “smooth reserve value,” which units a minimal worth for a person advert placement. In response to the FTC, that reserve might enhance the quantity a profitable advertiser paid even when one other advertiser’s bid didn’t require a better value.

The grievance alleges Amazon internally referred to the mechanism as an “invented public sale participant” and used a “proxy 2nd value” to assist decide the profitable advertiser’s value.

Why advertisers understood the public sale to work a sure method is central to the FTC’s case.

If advertisers count on their most bid to serve primarily as a ceiling, with competitors often figuring out a decrease last CPC, that may affect how aggressively they bid.

The FTC argues Amazon continued giving advertisers that impression whilst extra profitable advertisers started paying their full bid.

In response to the grievance, Sponsored Merchandise advertisers paid their full bid about 30% to 40% of the time in 2021. That elevated to 70% in 2022 and roughly 80% by 2024.

The FTC estimates the modifications resulted in additional than $20 billion in extra promoting prices.

Amazon doesn’t dispute that smooth reserve costs are a part of its auctions. It disputes the FTC’s characterization of how they work and whether or not the apply harmed advertisers.

Amazon Says Advertisers Weren’t Overcharged

Amazon disputes each the FTC’s description of its auctions and its declare that advertisers had been harmed.

In its response, Amazon says the FTC “essentially misunderstands how advertisers function.”

Amazon acknowledges utilizing smooth reserve costs however says they assist decide the market worth of particular person advert placements. It additionally argues reserve costs are widespread inside digital promoting auctions.

Amazon says its auctions think about each an advertiser’s bid and predicted relevance. If a profitable bid exceeds each the onerous and smooth reserve costs, the advertiser pays the smooth reserve. If the bid clears the onerous reserve however falls beneath the smooth reserve, the advertiser pays its bid.

In both case, Amazon says an advertiser by no means pays greater than its most bid.

Amazon additionally factors to its personal efficiency knowledge as proof that advertisers weren’t harmed. It says common profitable bids for Sponsored Merchandise search advertisements fell 50% between 2019 and 2025. Common CPC remained flat from 2019 by 2024 after adjusting for inflation, whereas conversion charges elevated 24% between 2021 and 2025.

Amazon estimates its relevance-based public sale mannequin saved advertisers greater than $8 billion between 2021 and 2025.

That doesn’t immediately reply the FTC’s argument, although.

The FTC isn’t alleging advertisers paid greater than their most bids. It’s arguing advertisers might have set these most bids otherwise in the event that they understood how Amazon was figuring out the ultimate value.

Amazon’s place is that advertisers don’t handle bids based mostly on simplified descriptions of public sale mechanics. They alter based mostly on precise CPCs, conversions and return on advert spend.

Whether or not Amazon adequately defined its public sale mechanics is a central a part of the dispute.

Different Advert Platforms Have Confronted Comparable Scrutiny

Amazon isn’t the one main promoting platform to face questions on what it tells advertisers about pricing and advert efficiency.

In 2025, the FTC started investigating each Amazon and Google over their search promoting practices. The investigation checked out whether or not the platforms adequately disclosed pricing and different phrases, together with whether or not they elevated advert prices with out correctly informing advertisers.

Up to now, the FTC has not filed a comparable lawsuit in opposition to Google.

Google has confronted other legal challenges involving its advert auctions. In 2020, a Texas-led group of states sued Google over its show promoting enterprise, alleging anticompetitive practices and misleading representations about how its advert auctions operated.

The Division of Justice introduced a separate advert tech antitrust case in 2023. A federal decide dominated in 2025 that Google illegally monopolized two markets involving writer advert servers and advert exchanges. That case targeted on competitors inside Google’s open-web advert tech enterprise quite than allegations that Google misled Google Adverts clients about CPC pricing.

Meta has confronted a unique sort of advertiser lawsuit.

Advertisers sued Meta over its “Potential Attain” metric, alleging Meta represented it as an estimate of individuals when the metric truly counted accounts. The advertisers argue these inflated estimates led them to purchase extra advertisements and pay greater than they in any other case would have.

The Ninth Circuit allowed the advertiser damages class to move forward in 2024. The Supreme Court docket declined Meta’s request to assessment that call in January 2025.

The Meta case wasn’t introduced by the FTC and doesn’t contain public sale pricing. However it raises an identical subject across the info advertisers depend on when deciding how a lot to spend.

Amazon’s case places that query immediately on the mechanics that decide what advertisers pay.

What This Means For Advertisers

For now, Amazon advertisers ought to proceed managing their campaigns as standard whereas the case strikes by the courts.

Advertisers with vital historic spend might need to protect marketing campaign knowledge from the interval coated by the FTC’s allegations. That features spend, bids, CPCs and different efficiency knowledge that would turn out to be related because the case progresses.

The FTC is searching for financial aid as a part of the lawsuit, though it’s far too early to know whether or not particular person advertisers might obtain compensation or what that course of would possibly appear to be.

Historic efficiency knowledge might additionally give advertisers extra context across the durations coated by the FTC’s allegations. The company claims Amazon elevated its promoting surcharges throughout high-volume buying durations, together with Prime Day and Black Friday.

Advertisers must be cautious about drawing conclusions from CPC developments alone. Greater CPCs throughout main buying durations can come from elevated competitors, seasonality and modifications in advertiser demand. Historic marketing campaign knowledge isn’t more likely to present whether or not Amazon’s smooth reserve value brought on a selected CPC enhance.

That limitation will get nearer to what makes this case related for advertisers.

Advertisers know the bid they submitted, the CPC Amazon charged and the efficiency that adopted. They’ve far much less details about the calculations Amazon used to get from the bid to the ultimate value.

That leaves advertisers largely depending on the platform to precisely clarify how these calculations work.

The FTC’s case will check whether or not Amazon offered sufficient details about its public sale mechanics and whether or not any lack of disclosure brought on advertisers to pay extra.

What Occurs Subsequent

The lawsuit remains to be in its early levels, and Amazon has made clear it plans to struggle the FTC’s allegations.

The case might take years to resolve, particularly if both aspect appeals. Within the meantime, the courtroom must think about how Amazon represented its public sale mechanics to advertisers and whether or not its use of sentimental reserve costs violated client safety legal guidelines.

The end result might additionally present extra readability round what promoting platforms must disclose when modifications to their public sale methods have an effect on pricing.

For Amazon advertisers, there isn’t a lot to behave on but past protecting historic marketing campaign and efficiency knowledge obtainable because the case strikes ahead.

We’ll proceed to observe the lawsuit and replace this text because the case develops.