How Amazon's Secret Ad Pricing System Worked

The U.S. Federal Trade Commission and 22 states filed a lawsuit against Amazon on Monday, alleging the company secretly manipulated its advertising auctions to overcharge advertisers, according to the BBC and The Wall Street Journal. The complaint alleges the Amazon ad pricing practice generated more than $20 billion from advertisers. Amazon has rejected the allegations, calling the lawsuit "misguided."

Brands and sellers compete on Amazon's platform to place Sponsored Products and Sponsored Brands ads when shoppers search for items using keywords, with an auction system determining ad placement.

According to the FTC lawsuit against Amazon, the company told advertisers it used a "second-price" auction model, where the winning bidder pays roughly one cent more than the next-highest bid. The complaint alleges Amazon overrode these results with higher prices it set itself to boost profits. Details are available via the FTC's official website.

The complaint alleges that, in practice, Amazon charged advertisers close to their own full winning bid nearly 80% of the time , far above what the second-price model promised.

The Amazon advertising lawsuit also alleges the added costs were passed on to consumers through higher retail prices, and that Amazon pursued the changes after growing dissatisfied with its auction revenue.

Amazon strongly disputed the allegations, saying it "strongly disagrees" with claims that it misled advertisers and rejecting claims of consumer harm. The company said the FTC "fundamentally misunderstands how advertisers operate," noting that average winning bids for Sponsored Products ads fell 50% between 2019 and 2025, and that 92% of placements are not awarded to the highest bidder.

The case is expected to proceed through federal court in Washington state, where Amazon is headquartered. Amazon said it looks forward to presenting its case in court. The outcome could carry financial and regulatory implications, following Amazon's $2.5 billion settlement with the FTC last year over its Prime subscription practices. More coverage is available via amazon-stock-ftc-lawsuit-advertising-practices.