Amazon Accused of Hiding $20B+ in Advertising Surcharges

The Federal Trade Commission (FTC) and 22 states have filed a lawsuit against Amazon, alleging that the company secretly manipulated its advertising auctions to charge over $20 billion in additional fees to more than 1.2 million brands and sellers since 2019.

Amazon sells Sponsored Products, Sponsored Brands, and Sponsored Display ads through auctions that determine which advertisements appear alongside search results and on product pages. The company has claimed that these auctions are competitive second-price auctions, where advertisers submit the maximum amount they're willing to pay for a click but only pay enough to beat the next highest-ranked ad.

However, internal documents reveal that Amazon began experimenting with undisclosed 'soft reserve' pricing in 2018 and expanded it to Sponsored Products in 2019. This meant that if the soft reserve price was higher than the winning bid, Amazon could charge the advertiser the surcharge instead of their actual bid.

The FTC alleges that Amazon continued to describe its auctions as second-price auctions while knowing they had changed to a first-price auction with a hidden surcharge. The company allegedly tested higher surcharge limits and saw no significant change in advertiser bids or budgets, making the higher limit permanent.