Amazon Didn’t Just Sell the Ad. It Allegedly Controlled the Price of Being Seen.

Inside the Amazon Ad Surcharge Lawsuit

To understand what’s alleged, it helps to understand what advertisers were told. When a shopper searches a product on Amazon, businesses bid for the sponsored placements around the results — Sponsored Products, Sponsored Brands, and Display ads. For years, according to the complaint, Amazon told prospective advertisers it ran a “second price” auction: whoever bid highest would win the placement, but would only pay one cent more than the next-highest bidder. That’s a well-established, industry-standard auction design — the same logic economist William Vickrey described in a 1961 paper that gave these auctions their name. The idea is that bidders can bid honestly, without guessing exactly how much to shade their bid down. The auction itself is supposed to protect them from overpaying.

What the FTC Says Amazon Changed

According to the complaint, starting around 2019 Amazon introduced something it called internally a “soft reserve price” — without telling advertisers. The FTC alleges Amazon’s own documents describe the mechanism in strikingly direct terms: the Senior Vice President in charge of Amazon Ads is quoted explaining that the price advertisers actually paid “isn’t set by an actual bidder, but rather by” Amazon itself, in the form of a “proxy 2nd price that we calculate.” An Amazon senior scientist is quoted describing the same mechanism as an “invented auction participant representing how much Amazon thinks that particular ad slot is worth.” The complaint compares this to shill bidding — the practice of a seller planting a fake bid to drive up the price a real buyer pays.

The practical result, the FTC alleges: by 2024, Sponsored Products advertisers were charged their own full winning bid close to 80% of the time. That effectively turned a “second price” auction into a first-price one, where the discount the auction design was supposed to guarantee rarely showed up. The complaint also alleges Amazon learned about the FTC’s investigation in September 2024 and kept the pricing mechanism running anyway, including an internal discussion the day after Thanksgiving that year about raising reserves further because ad revenue had come in below plan.

Why the Difference Actually Matters

This isn’t a technicality. Auction design shapes how people bid. In a genuine second-price auction, a bidder can safely bid what a placement is actually worth to them, trusting the mechanism to protect them from paying more than necessary. The “second price” is supposed to be set by real competition. If it’s instead a number the platform itself is calculating to close that gap, the protection the auction format promised becomes theoretical. The complaint’s account of Amazon showing advertisers neither the runner-up bid nor the per-click charge compounds the problem. Verifying whether the promised protection ever applied was allegedly not something advertisers could do on their own.

Why the Amazon Ad Surcharge Lawsuit Matters to Small Businesses

The FTC’s complaint says more than one million advertisers were affected, and that more than 500,000 of them were small and midsize businesses. That distinction matters for a structural reason beyond scale. A large advertiser with dedicated ad-ops staff and outside agency support has more capacity to notice pricing anomalies, benchmark performance, and push back. A small seller running their own Amazon storefront generally doesn’t have that infrastructure. They’re relying on the platform’s own description of how the auction works, because there’s rarely an independent way to check it.

That vulnerability doesn’t mean SMBs paid the most, suffered the greatest dollar losses, or made up a majority of the affected group — the complaint doesn’t establish any of that. What the record does support is a practical reality: smaller operators typically have less ad-operations infrastructure and fewer independent ways to benchmark whether the price they’re being told is fair actually is.

What Amazon Says About the Ad Surcharge Lawsuit

Amazon disputes the case in detail, not just in tone. The company says the FTC “leans on a handful of simplified communications to allege a companywide effort to deceive.” It argues critics are misreading how advertisers actually behave: “Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics.”

Amazon also makes two distinct economic arguments, and the company is careful to keep them separate: average cost-per-click for advertisers stayed roughly flat in real (inflation-adjusted) terms from 2019 through 2024, while average winning bids — a different metric — fell by roughly 50% over that period. Amazon argues that even accepting the FTC’s account of the mechanism, advertisers saved more than $8 billion from 2021 to 2025 because Amazon prioritizes ad relevance over selecting winners on bid price alone. Critically, Amazon disputes that the complaint offers evidence connecting its ad pricing to higher retail prices for consumers — a claim this article does not treat as established either way.

What the Amazon Ad Surcharge Lawsuit Reveals About Platform Power

Strip away the auction mechanics and this lawsuit is really asking an older question in new form. When a single company operates the shelf, the map to find anything on the shelf, and the toll for standing near the entrance, how much leverage does a seller actually have to say no? Most businesses named in the complaint didn’t choose to depend on Amazon out of preference. They depend on it because that’s where a meaningful share of their customers already are. That dependency is exactly what turns an advertising dispute into a platform-power story. The question isn’t only whether Amazon calculated a number correctly — it’s whether sellers ever had a real alternative to paying whatever the calculation produced.

This case, however it resolves, won’t answer that larger question on its own. But it’s a useful stress test for it — a moment where the internal language of a dominant platform became public, and businesses that depend on that platform got a rare look at how the price of being seen actually gets set.

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The Everything War

Dana Mattioli

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Mattioli provides the company-level context: Amazon’s expansion across commerce, competition, and marketplace infrastructure, and what dependence on that ecosystem can mean for the businesses operating inside it.

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