Amazon has told the businesses that advertise on its site for more than a decade that they are bidding in fair “second price” auctions, where the winner never pays more than a penny above the next-highest offer. Federal and state regulators say that promise was largely fiction. In a complaint filed August 31, the Federal Trade Commission and attorneys general from 22 states allege Amazon quietly rewrote its own auction rules starting in 2019, so that more than 500,000 small and mid-sized businesses — among roughly 1.2 million advertisers total — ended up paying their own top bid far more often than a genuine second-price auction would ever produce. The complaint puts the total harm at more than $20 billion, and regulators say the cost does not stop with the sellers who pay it.
What Amazon Told Advertisers, and What the Complaint Says Really Happened
Since roughly 2012, sellers who want their products to show up first when a shopper searches Amazon have bid for that placement through Sponsored Products, Sponsored Brands and Display ads. Amazon has long described these as “generalized second-price” auctions, the accepted industry standard, where a bidder’s cost is set by the next-closest competitor rather than by their own number. That structure is supposed to reward honest bidding: advertisers can bid what a placement is actually worth to them without worrying they will overpay.
According to the complaint, that is not how the pricing actually worked. Regulators allege Amazon began layering in an undisclosed “soft reserve price” in 2019 — internally described in company documents as a surcharge “hidden in” the auction — that pushed many advertisers’ costs up to, or near, their own winning bid regardless of what the next competitor offered. The filing quotes an Amazon executive describing the price as a “proxy 2nd price that we calculate,” not one set by an actual competing bidder.
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From Roughly 30 Percent to Roughly 80 Percent
The complaint traces how often Sponsored Products advertisers ended up paying the exact amount of their own bid — the tell that a “second price” auction has effectively become a “first price” one. Regulators allege that figure ran between 30% and 40% in 2021, climbed to about 70% in 2022, and reached approximately 80% by 2024. The FTC’s press release states Amazon ramped the surcharges especially hard around high-volume shopping events like Prime Day and Black Friday, then eased off afterward to avoid drawing attention. The complaint quotes an internal Amazon assessment calling the approach a “clever non-transparent way to charge first price” and an “incredibly effective way to drive revenue.”
Why an Ad Auction Dispute Shows Up in a Grocery Cart
Most households never bid on an Amazon ad placement, but that does not mean the alleged scheme stays contained to sellers. FTC Chairman Andrew Ferguson said in the announcement that the higher advertising costs “were largely passed on to American consumers.” That is the mechanism households actually feel: a small business selling kitchen gadgets, pet supplies or vitamins on Amazon typically treats advertising as a cost of doing business, and cost increases of the size alleged here — regulators say the scheme ran for more than seven years — tend to get built into the shelf price rather than absorbed as a loss. A seller who suddenly owes their own top bid instead of a discounted second-place price has less room to hold a line on what the item costs at checkout.
Filed in Washington State, Disputed by Amazon, Decided by Nobody Yet
The case was filed in the U.S. District Court for the Western District of Washington, with the Commission voting 2-0 to authorize it. This is a civil enforcement action, not a criminal case, and Amazon has publicly disputed the allegations, arguing its auction changes ultimately improved ad performance for advertisers. No judge has ruled on the merits, no liability has been established, and no fund, refund process or claim form exists for affected sellers or consumers. Anything beyond that — a settlement amount, a payout schedule, an admission of wrongdoing — is not yet part of the public record and may or may not ever materialize, on whatever timeline a federal case like this typically takes.
What Small Sellers and Shoppers Should Actually Do This Week
For a household or a small Amazon seller, the practical takeaway right now is patience paired with caution. Nothing about this filing requires action from an ordinary shopper, and nobody legitimate will be calling this week to help a small business “recover” money from a case that has not been decided. Sellers who advertise on Amazon can watch their own account-level ad spend reports for unusual cost jumps, since that is the kind of evidence regulators say built this case in the first place. Anyone contacted by someone claiming to represent this lawsuit, offering to file a claim or asking for payment information tied to it, should treat that as a scam and report it to the FTC directly at ReportFraud.ftc.gov rather than to whoever reached out.
This article was produced with AI assistance and reviewed by a human editor. Figures are linked to their primary sources; where a claim could not be verified from the public record, we say so.
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