The Federal Trade Commission and 22 state attorneys general today filed a 181-page complaint in Seattle alleging that Amazon spent seven years secretly overriding the results of its own advertising auctions, charging Sponsored Products advertisers their own winning bid close to 80% of the time while continuing to describe the mechanism as a second price auction. Amazon published a rebuttal the same day, arguing that average cost-per-click stayed flat in real terms and that advertisers saved more than 8 billion dollars because of the same pricing system.

The case, filed in the United States District Court for the Western District of Washington as Case 2:26-cv-03097, is not an antitrust action. It is a consumer protection suit brought under Section 5(a) of the FTC Act and the deceptive trade practices statutes of 22 jurisdictions, and its subject is a single sentence Amazon repeated for more than a decade: that the winner of an ad auction pays roughly one cent more than the next highest bidder.

According to the complaint, that sentence stopped being true in 2018 for Sponsored Brands, in mid-2019 for Sponsored Products, and by 2023 for Display Ads. What replaced it was a system Amazon employees called a "soft reserve," and which the same employees, in documents quoted throughout the filing, called a surcharge.

"When one of the world's largest online retailers engages in unfair and deceptive conduct, the impact can be staggering," said Chairman Andrew N. Ferguson, according to the FTC. "Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers."

Amazon rejects the framing. "The FTC wants the public to believe this case is about higher prices for consumers. It is not," the company wrote in a response posted to its corporate news site, adding that it looks forward to making its case in court.

Two-stage pricing

The mechanical allegation is precise, and it is the part of the complaint that matters most to anyone who buys Amazon inventory.

According to internal Amazon documents cited in the filing, the company calculates cost-per-click in two stages. First it runs a generalized second price auction, ranking advertisers by bid and relevance and computing the price that auction would produce, referred to internally as the "GSP CPC." Then, the complaint states, Amazon "transforms the GSP CPC to the final CPC" by calculating a soft reserve price on top of it.

The distinction between that and an ordinary reserve is the crux. A conventional reserve is a floor published before the auction runs, and a bid must clear it to compete. Amazon's soft reserve, according to the complaint, is applied after the auction has already produced a winner and a runner-up, and it is capped only by the winning bid itself. Sponsored Products team members described the practice internally as "post-hoc pricing adjustments" carrying "an element of unfairness" because "[a]dvertisers may not be expecting" them.

The complaint quotes the Senior Vice President in charge of Amazon Ads explaining that in these auctions "the second price isn't set by an actual bidder, but rather by" Amazon, in the form of a "proxy 2nd price that we calculate." An Amazon Senior Scientist described the same mechanism as "an invented auction participant representing how much Amazon thinks that particular ad slot is worth."

The FTC compares this to shill bidding. The complaint notes that William Vickrey, whose 1961 paper gave sealed-bid second price auctions their name, warned that such auctions are vulnerable to precisely this failure and recommended showing the second-best bid to the winner so the price could be verified. Amazon shows advertisers neither the runner-up bid nor per-click charges.

From 4% to about 80%

The number that will travel from this filing is the first price rate: the share of clicks where the advertiser paid the exact amount of its own bid rather than the minimum needed to win.

Internal weekly business review reports compared by the FTC show the rate at 4% across a five-week period in late September and October 2020. Three years later, over a five-week stretch from mid-October to November 2023, it stood between 52% and 64%. The complaint traces the intermediate steps: between 30% and 40% in 2021 after Amazon began using a pricing system keyed to estimated ordered product sales, 70% in 2022 when that system went marketplace-wide in the United States, and 79.1% by 2024, at which point an internal operating plan observed that Amazon was "close to charging the maximum amount the winning ads are currently bidding" and that "the potential for future CPC growth is limited, unless we can nudge advertisers to increase their bids."

Sponsored Brands followed a similar path on a smaller base. According to the complaint, Amazon set prices for 70% of Sponsored Brands clicks in 2024 and charged winning bidders their own bid amount half the time.

Amazon does not dispute that reserves exist. It disputes what they are. According to the company, hard reserves cover its costs and soft reserves "represent what we estimate to be the true market value of the ad placement." It adds that reserves of this kind are common across the industry and that "[i]n no scenario does an advertiser pay more than their bid."

What advertisers were told

The deception count rests on volume and consistency rather than on a single statement.

According to the complaint, Amazon has represented since at least 2014, across its website, YouTube channel and online training portals, that the winning bidder pays an amount "slightly higher than" or "one penny more than" the second-place bid. A 2019 internal evaluation report for account executives contains coaching notes such as "Watch 'second-price auction' explanation and make sure there is clarity with paying .01 more than second highest."

The representation appears in Amazon Ads Academy training courses, in webinars aimed at Kindle Direct Publishing authors, in a Sponsored Brands developer guide posted from at least 2025 until July 2026, and in pitch decks approved by Amazon's public relations and legal departments and delivered to advertisers including Sony, Samsung, Harman JBL and Coach between 2020 and 2023.

It also appears in a February 2024 email. According to the complaint, the chief executive of an advertiser wrote directly to the head of Amazon Ads asking whether bidding 5 dollars on a keyword where competitors bid between 1.50 dollars and 2.00 dollars would cost him 5 dollars. The reply: "Generally, the amount you pay is governed by a generalized second price auction - which means that the amount you pay for a click is dependent on what the next lowest bid is. So, if you bid $2.00 and the next lowest bid is $1.00, you win the auction and pay $1.01." The advertiser then wrote back that he had set a 5 dollar bid on every keyword as a result.

The same belief propagated outward. The complaint documents seven Amazon Ads Partner Network agencies, from Feedvisor in January 2020 to SellerMetrics in February 2026, publishing the one-cent rule on their own websites as guidance to clients.

Amazon's position is that the cited materials were marginal. According to the company, three training courses the FTC points to drew 1,849 enrollments and 779 completions across their entire lifetimes, one of them attracting 23 enrollments and 14 completions in total, and one cited educational video was viewed by 928 people over two and a half years, approximately 0.09% of United States Sponsored Ads advertisers. Amazon states that its Ad Console Campaign Builder has said since 2018 that a bid represents the maximum an advertiser could be charged, and that it updated Sponsored Ads content that year to reflect its relevance models.

Why nobody could check

Reporting opacity is the load-bearing element of the FTC's theory, and Amazon's own documents supply the evidence.

Amazon does not itemise invoices by click. Reporting is aggregated at keyword level and combines desktop and mobile placements. A 2019 Sponsored Products operating plan described the auctions as having "highly obfuscated reporting." An internal memorandum on Sponsored Brands surcharges concluded that advertisers were unlikely to "adjust their bids in an attempt to lower their payout" because "[a]dvertisers do not have visibility into the behavior of individual auctions."

Automatic bidding compounds it. According to a document prepared by the head of Sponsored Products auctions ahead of a 2020 executive meeting, the effect of dynamic and rule-based bid adjustments is that "an advertiser doesn't even know what bid is being entered (and thus can't know if the CPC charged was first price)." Amazon's automatic strategies can currently raise a bid by up to 900% for certain Sponsored Products placements.

The consequence Amazon feared was bid shading. In a genuine second price auction, shading is irrational: it risks losing without lowering the price. In a first price auction, it is standard practice. An Amazon employee summarised the exposure in a 2020 email quoted in the complaint: "Imagine being an advertiser and seeing most of your clicks being charged a CPC equal to the bid you specified (original bid). It will alter how you approach bidding."

In January 2025, according to the filing, Amazon engineers and applied scientists estimated the sum advertisers would save in 2025 through perfect bid shading, and added that the estimate "likely understate[s]" the total because a market-wide move to shading would also pull GSP clearing prices down. The figure itself is redacted.

Peak days and three escalations

Surcharges were not applied evenly. According to the complaint, Amazon raised its surcharge ceilings around what it internally calls high velocity events: Prime Day, Prime Big Deal Days, Black Friday, Cyber Monday and the pre-Christmas period.

The stated logic was concealment. A Sponsored Brands employee wrote that a 2018 reserve experiment showed "our price increases were masked by holiday increases in advertiser demand." The head of Sponsored Products auctions later explained that surcharge constraints are relaxed "when there are enough confounders (e.g., seasonality) that make it difficult to detect bid shading opportunities."

It did not always hold. On December 10, 2021, according to the complaint, the auction team effectively removed its click-level surcharge constraint, and prices spiked over the following five days. From December 13, more than twenty agencies and advertisers escalated. Agencies that "work with thousands of advertisers" reported that costs had risen across the board on branded keywords in a single day with no bid changes, and that pricing "seemed to be close to a first price-auction for branded keywords." On December 17 the Vice President of Sponsored Products convened a war room. By December 20 the team had drafted a reply for account managers attributing the movement to Black Friday and Cyber Monday engagement patterns. One account manager asked internally whether there was "no other underlying/root cause for this volatility" and was told to convey the prepared message.

An internal draft summarising what had actually happened, titled "SP CPC Spike Escalations - December 2021 v.1," included a section on reserve prices. During a February 1, 2022 chat about the draft, a Director in Sponsored Products said the document should not mention "GSP at all." A product management colleague objected that the revised version "makes it sound like Amazon Ads had no role in [the CPC] fluctuations, which isn't the case as we are having this discussion." The version circulated on February 9, 2022 mentioned neither GSP nor reserve prices.

Prime Day 2023 produced a rerun. On July 11, the auction team reported CPC increases below expectation and obtained approval to raise the surcharge constraint across the entire United States marketplace for day two. The order form recorded the purpose as "Prime Day RoAS Maintenance." One grocery advertiser's account manager reported internally that client CPCs were up more than 90%: "my client is saying they are seeing 90%+ increases killing RoAS." The approved external response, cleared by public relations and legal, attributed the change to shopper and advertiser engagement.

The third escalation ran from October to December 2024, after Amazon had learned of the FTC investigation. A consumer products manufacturer asked for a detailed explanation of how prices were set, citing a prior Amazon assurance that bid modifiers cap at one cent above the second highest bid. After six weeks of internal legal review, the answer supplied was that cost-per-click will never exceed the maximum bid and that "Amazon is unwilling to provide any further details on our auction model." Internal notes described the advertiser as "very combative" and the episode as "a case study on how we should prep advertiser-facing teams."

Managing the vocabulary

Two episodes in the filing concern language rather than pricing.

In April 2024, a scientist preparing a slide for an internal Amazon conference was told to edit it because it contained the word "surcharge," and "we have been advised to avoid this term in any internal or external communication." In July 2024, members of the Sponsored Products auction team asked ChatGPT for alternatives to the term. The suggestions under consideration included "value adjustment," "price refinement," "inflated CPC," "price exaggeration factor," "performance premium" and "profit extraction lever." The team settled on "performance premium."

In September 2024, an Amazon research paper titled "How Do Advertisers React to Changes in Ad Auction Pricing?" appeared on Amazon's public science page and on the site of the KDD conference. On September 20, the manager overseeing Sponsored Products auction pricing had it removed from both. "I should have been on top of this," he wrote. "Crap."

Public disclosure came later and narrowly. According to the complaint, Amazon first added a reference to reserve pricing to its website on October 30, 2025, on a single Support Center page reachable only by searching for it or by clicking through the bidding and budget section. That text did not define the term. A March 2026 revision added that "the price charged to you may exceed the runner-up bid but will never exceed the maximum bid you authorize." The complaint also states that Amazon removed a second price representation from a marketing page after learning of the investigation in October 2024 but did not tell the FTC it had done so until August 26, 2026, five days before the filing.

Amazon's counter-case

Amazon's response does not contest the existence of reserve prices. It contests the harm, and it does so with a different set of measurements.

According to the company, average cost-per-click for Sponsored Products search ads remained flat when adjusted for inflation from 2019 through 2024, while conversion rates rose more than 24% for individual advertisers between 2021 and 2025. It states that approximately 92% of selected Sponsored Products ads in 2024 were not the highest bid, often by a wide margin, and that the mean winning bid is typically about the 12th bid by amount. For 2026, Amazon estimates advertisers will deliver at least 58% higher sales and at least 46% better return on ad spend than they would under ranking by bid alone.

The 8 billion dollar figure carries the argument. Amazon states that even accepting what it calls the FTC's flawed premise that advertisers hold bids constant regardless of performance, advertisers saved more than 8 billion dollars from 2021 to 2025 as a result of Amazon incorporating relevance into the auction rather than selecting ads on bid alone.

That is a different counterfactual from the FTC's, and the distinction is the analytical centre of the dispute. Amazon measures its auction against a hypothetical auction that ranks purely by bid. The complaint measures the price charged against the GSP price the same auction already computed, before the soft reserve is added. Both comparisons can be arithmetically correct at once. They answer different questions, and only the second is the one the deception claim turns on, because the second is the price Amazon's training materials described.

Amazon also argues that advertiser behaviour makes the deception theory implausible. According to the company, buyers optimise against observed outcomes rather than stated auction rules, 80% of bid changes on clicked Sponsored Products search ads between 2019 and 2024 occurred within one day of a prior change, and reserves are set in real time and are not predictable in advance by anyone, including Amazon. It cites one study in which a single advertiser withdrawing from a set of keywords cut competitors' average bids by about 83%, from 15.96 dollars to 2.74 dollars.

The complaint anticipates part of that. It notes that Amazon Demand Side Platform expressly advises advertisers to factor in the "declared auction model" of third-party auctions when devising bidding strategy, and that a 2024 Amazon article promoting its own bid-shading algorithm described the difference between first and second price as something that "impacts bidding strategies and pricing dynamics." It also records that Amazon, as a buyer in other companies' auctions, adopted an aggressive shading strategy immediately after a large exchange moved to first price.

Three points where the documents disagree

The two filings diverge on facts as well as interpretation, and in one case a document disagrees with itself.

Amazon states that it has priced clicks using a form of generalized second price auction since it first offered ads in its store in 2006. The complaint states that Amazon began running its advertising auctions in approximately 2012 and that an internal 2021 document titled "SP Pricing Historical Context and Future Direction" recorded that "[a]s of 2018, SP [Sponsored Products] ran a GSP auction without any reserves."

Amazon's key takeaways state that average winning bids fell 50% from 2019 to 2025. The body of the same response states that the 50% decline ran from 2019 to 2024. The company did not reconcile the two figures.

The complaint dates Amazon's awareness of the FTC investigation to October 2024 in one paragraph and to September 2024 in another. Amazon's response says only that it acted when the FTC raised concerns.

Why it matters for advertisers

Amazon reported advertising services revenue of 19.8 billion dollars for the second quarter of 2026, a 26% year-over-year increase and the strongest rate across six quarters of supplemental disclosures, with chief executive Andy Jassy naming Sponsored Products as the largest offering. The complaint places the disputed pricing mechanism directly underneath that line.

Regulatory interest was already public. The FTC opened consumer protection inquiries into both Amazon and Google in September 2025, examining whether the two companies properly disclosed reserve pricing and auction mechanics to search advertisers. Today's complaint is the first of those two to produce a filing. Separately, the agency secured a 2.25 million dollar civil penalty against Amazon in June 2026 over identity theft records, a matter unrelated to advertising.

The parallels on the Google side are close enough to be instructive. In September 2025, a federal court ordered Google to publicly disclose material changes to its ad auctions, finding that the company had raised text ad prices incrementally so advertisers would read the increases as ordinary auction noise. Publisher-side litigation has run on similar allegations: The Atlantic sued Google in January 2026 over programs including Project Bernanke, and Teads followed in July 2026 with a complaint walking through the arithmetic of a single manipulated impression. A mass arbitration campaign against Google on behalf of United States advertisers began in May 2026.

Standards work has been moving in the same direction and has not resolved. The Media Rating Council issued draft Digital Advertising Auction Transparency Standards in September 2025, and Check My Ads Institute filed objections in October 2025 warning the framework risked legitimising opacity for closed-loop platforms. IAB Tech Lab published Programmatic Auction Definitions for public comment in January 2026, a 12-page specification of common vocabulary. The complaint cites a January 2026 industry report of the same name for the proposition that bidding strategies "are devised based on the understood rules of an auction system."

Closed-loop retail media is where the exposure concentrates. Onsite sponsored formats across the sector inherited the second price model from search, and Amazon is the reference implementation most competing networks were built against. The complaint's core factual claim, that a platform serving as both auctioneer and seller can insert a price after the bids are unsealed and that buyers have no reporting with which to detect it, describes a structural property of closed-loop auctions rather than a quirk of one company. Amazon itself has been moving some inventory away from auction pricing: it added fixed-price reservations for branded top-of-search Sponsored Brands placements in October 2025.

What the plaintiffs seek

The Commission vote authorising the complaint was 2-0. The FTC seeks a permanent injunction under Section 13(b). The plaintiff states seek injunctive relief, rescission or reformation of contracts, restitution, refunds, disgorgement, civil penalties, attorneys' fees and costs under their respective statutes. Maryland's provision alone allows penalties of up to 10,000 dollars per violation.

The FTC states its belief that Amazon is violating or about to violate laws it enforces on five grounds, among them that the conduct ran for more than seven years, that it was willful, that Amazon continues to earn billions from it, and that where conduct stopped it stopped only after the company learned of the investigation.

Attorneys on the matter from the FTC's Northeast Regional office are Jonathan W. Platt, Darren H. Lubetzky, Adam K. Hersh, Vikram Jagadish, Jason E. Kornmehl and Ishan Shivakumar.

Much of the complaint's most consequential arithmetic is redacted in the public version, including average surcharge rates, the size of the guardrails Amazon placed on its reserves, and the January 2025 estimate of what bid shading would have saved advertisers. The percentages that survive redaction, from 4% to about 80% on the first price rate, are enough to describe the trajectory. The dollar figures that would size it are not yet public.

Timeline

  • 1961: William Vickrey publishes Counterspeculation, Auctions, and Competitive Sealed Tenders, warning that sealed-bid second price auctions are vulnerable to shill bidding
  • Approximately 2012: Amazon begins running its advertising auctions, using generalized second price without reserves through 2018, according to the complaint
  • 2006: Amazon first offers ads in its store and begins pricing clicks using a form of generalized second price auction, according to Amazon
  • At least 2014: Amazon begins representing in training and marketing materials that winners pay one penny more than the next highest bidder
  • Late 2018: Amazon starts undisclosed soft reserve pricing in Sponsored Brands auctions during the Christmas period
  • Mid-2019: Amazon extends reserve prices to Sponsored Products second price auctions
  • Late September to October 2020: internal reports show a 4% first price rate for Sponsored Products
  • February 2021: Amazon targets a cumulative 20% CPC increase in Germany and up to 9% in the United Kingdom, France, Italy and Spain
  • December 10, 2021: the Sponsored Products auction team removes its click-level surcharge constraint; prices spike over five days
  • December 13, 2021: more than twenty agencies and advertisers escalate to Amazon account managers
  • December 17, 2021: the Vice President of Sponsored Products convenes a war room
  • February 9, 2022: a revised internal summary of the spike omits any mention of GSP or reserve prices
  • February 2022: eOPS based pricing goes marketplace-wide in the United States; the first price rate reaches 70%
  • July 11 and 12, 2023: Amazon raises the surcharge constraint across the United States marketplace during Prime Day; one grocery advertiser reports CPCs up more than 90%
  • October to November 2023: internal reports show a first price rate between 52% and 64%
  • February 2024: the head of Amazon Ads describes the auction as generalized second price in an email to an advertiser's chief executive
  • April 2024: an Amazon scientist is instructed to remove the word surcharge from an internal conference slide
  • July 2024: the Sponsored Products auction team selects "performance premium" as a replacement term for surcharge
  • September 20, 2024: Amazon removes a research paper on advertiser reactions to auction pricing changes from public websites
  • September or October 2024: Amazon learns of the FTC investigation; the complaint gives both dates
  • December 12, 2024: Amazon tells an escalating advertiser it is unwilling to provide further details on its auction model
  • 2024: the first price rate reaches 79.1%; Sponsored Brands winners pay their own bid half the time
  • January 2025: Amazon engineers estimate advertiser savings from perfect bid shading; the figure is redacted
  • September 2025: the FTC opens consumer protection inquiries into Amazon and Google over search ad pricing disclosures
  • September 2, 2025: a federal court orders Google to disclose material changes to its ad auctions
  • October 2025: Check My Ads Institute challenges the MRC draft auction transparency standards
  • October 30, 2025: Amazon adds its first reference to reserve pricing to a single Support Center page
  • January 2026: IAB Tech Lab publishes Programmatic Auction Definitions for public comment
  • March 2026: Amazon updates the Support Center text to state that the price charged may exceed the runner-up bid
  • July 30, 2026: Amazon reports second-quarter advertising services revenue of 19.8 billion dollars, up 26%
  • August 26, 2026: Amazon informs the FTC that it removed a second price representation from a marketing page in October 2024
  • August 31, 2026: the FTC and 22 state attorneys general file Case 2:26-cv-03097; Amazon publishes its response the same day

Summary

Who: The Federal Trade Commission and the attorneys general of Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington, against Amazon.com, Inc. The alleged class of affected buyers is approximately 1.2 million United States advertising customers, including more than 500,000 small and medium-size businesses.

What: A 181-page complaint alleging deceptive and unfair practices under Section 5(a) of the FTC Act and 22 state statutes. The core allegation is that Amazon ran generalized second price auctions, computed the resulting price, then replaced it with a higher price generated by an undisclosed soft reserve system capped only by the winning bid. Internal reports cited in the filing show the share of Sponsored Products clicks charged at the advertiser's own bid rising from 4% in late 2020 to 79.1% in 2024. Amazon published a same-day response stating that cost-per-click stayed flat in inflation-adjusted terms from 2019 through 2024, that roughly 92% of selected ads in 2024 were not the highest bid, and that advertisers saved more than 8 billion dollars from 2021 to 2025 because relevance was weighted over bid amount.

When: Filed August 31, 2026. The conduct alleged runs from late 2018, when Sponsored Brands first used soft reserves, through the date of filing. Amazon learned of the investigation in September or October 2024, according to differing paragraphs of the complaint.

Where: United States District Court for the Western District of Washington, Case 2:26-cv-03097. The conduct concerns Sponsored Products, Sponsored Brands and Display Ads auctions on Amazon.com and its mobile app, with pricing experiments also documented in Germany, the United Kingdom, France, Italy and Spain.

Why: The plaintiffs allege Amazon represented a mechanism in which the winner pays a price set by the runner-up bid, then substituted a price it calculated itself, and concealed the substitution because disclosure would have triggered bid shading and a decline in revenue. Amazon argues the case misreads how advertisers behave, that buyers optimise against observed outcomes rather than stated auction rules, and that reserve prices are common industry practice that never cause an advertiser to pay more than the bid submitted.