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 way of adjustments to its promoting auctions.

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

Amazon disputes the allegations, arguing its public sale adjustments improved advert efficiency and finally saved advertisers cash.

On the heart of the case is a pricing mechanism Amazon launched in 2019 known 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 extensively 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.

Underneath Amazon’s conventional mannequin, advertisers would equally submit the utmost quantity they’re prepared to pay for a click on, however the successful 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 accordance with the FTC, that reserve may improve the quantity a successful advertiser paid even when one other advertiser’s bid didn’t require the next 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 successful advertiser’s price.

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

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

The FTC argues Amazon continued giving advertisers that impression at the same time as extra successful advertisers started paying their full bid.

In accordance with 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 adjustments 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 follow 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 “basically 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 frequent inside digital promoting auctions.

Amazon says its auctions take into account each an advertiser’s bid and predicted relevance. If a successful bid exceeds each the arduous and smooth reserve costs, the advertiser pays the smooth reserve. If the bid clears the arduous 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 information as proof that advertisers weren’t harmed. It says common successful bids for Sponsored Merchandise search advertisements fell 50% between 2019 and 2025. Common CPC remained flat from 2019 by way of 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 instantly 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 in another way 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.

Thus far, 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 choose dominated in 2025 that Google illegally monopolized two markets involving writer advert servers and advert exchanges. That case centered on competitors inside Google’s open-web advert tech enterprise somewhat than allegations that Google misled Google Adverts prospects about CPC pricing.

Meta has confronted a special kind 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 Courtroom 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. But it surely raises an identical subject across the data advertisers depend on when deciding how a lot to spend.

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

What This Means For Advertisers

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

Advertisers with important historic spend might wish to protect marketing campaign information from the interval coated by the FTC’s allegations. That features spend, bids, CPCs and different efficiency information that would change into related because the case progresses.

The FTC is in search of financial reduction as a part of the lawsuit, though it’s far too early to know whether or not particular person advertisers may obtain compensation or what that course of may appear like.

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

Advertisers needs to be cautious about drawing conclusions from CPC tendencies alone. Greater CPCs throughout main procuring intervals can come from elevated competitors, seasonality and adjustments in advertiser demand. Historic marketing campaign information isn’t more likely to present whether or not Amazon’s smooth reserve value induced a specific CPC improve.

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 take a look at whether or not Amazon offered sufficient details about its public sale mechanics and whether or not any lack of disclosure induced advertisers to pay extra.

What Occurs Subsequent

The lawsuit continues to be in its early phases, and Amazon has made clear it plans to combat the FTC’s allegations.

The case may take years to resolve, particularly if both aspect appeals. Within the meantime, the court docket should take into account how Amazon represented its public sale mechanics to advertisers and whether or not its use of soppy reserve costs violated shopper safety legal guidelines.

The end result may additionally present extra readability round what promoting platforms have to disclose when adjustments to their public sale techniques have an effect on pricing.

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

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