The Federal Trade Commission and 22 states sued Amazon on August 31, accusing the company of quietly rigging its advertising auctions for more than seven years and overcharging more than a million sellers and brands. The complaint describes an internal mechanism Amazon called a soft reserve price, introduced around 2019, that used a fictitious bidder to push prices higher, leaving merchants to pay their full bid about 80 percent of the time when they believed they were paying only a penny more than the next-highest bid.
The lawsuit targets Amazon’s most profitable business directly. Advertising generated more than $68 billion in revenue last year, making it the company’s fastest-growing segment and the engine of its recent profit growth. The complaint alleges that Amazon deliberately hid the change to protect that revenue, and that the company’s own documents show executives knew the mechanism would increase what advertisers paid.
The mechanics of the alleged scheme are detailed in the complaint. Amazon’s ad auctions, the company told merchants, were second-price auctions, in which the winner pays one increment above the second-highest bid. In a second-price auction, the incentive is to bid your true value, because overbidding only raises what you pay when the competition is close. The complaint alleges Amazon broke that bargain by introducing a soft reserve price: a floor below which the auction would not clear, enforced by a phantom bidder. The result, according to the FTC, was that merchants paid their maximum bid about 80 percent of the time, turning a second-price auction into a first-price one without telling them.
The affected inventory is not a corner of Amazon’s business. The complaint covers Sponsored Products, Sponsored Brands and Display ads, the three formats that dominate Amazon’s advertising. More than a million brands and sellers used those products during the period in question, the FTC said, meaning the alleged overcharging touched a large share of the companies that sell on Amazon. The complaint seeks monetary relief and an order barring Amazon from repeating the practice.
Amazon responded with a statement calling the lawsuit’s theory flawed, saying it mischaracterizes how the company’s advertising works and what sellers experience. The company has argued that its ad auctions are competitive, that sellers pay less than they would elsewhere, and that its tools have made advertising easier for small businesses. The FTC’s complaint, Amazon said, rests on a misunderstanding of the marketplace it has built.
The case is the latest front in the FTC’s campaign against Amazon under its current leadership. The agency sued Amazon in 2023 over its marketplace practices, and that case is still working through the courts. The new lawsuit targets advertising, a business the FTC has been examining for years, and it joins a broader regulatory push that includes state attorneys general and scrutiny from competition authorities abroad. The states involved in the new suit span both parties, an indication that Amazon’s advertising practices have attracted bipartisan concern.
For sellers, the allegations match a long-standing grievance. Merchants have complained for years that advertising costs on Amazon have climbed faster than their sales, and that the auction system is opaque. The complaint gives those complaints a legal theory and a name: the soft reserve price. If the FTC wins, sellers could be in line for refunds, though the logistics of distributing money to more than a million merchants would be complicated, and Amazon would almost certainly appeal.
The case will take years to resolve. The FTC’s 2023 lawsuit has not yet reached trial, and the advertising case will follow a similar path, through motions, discovery and likely appeals. Legal analysts said the complaint is notable for its specificity: the alleged 80 percent figure, the timing of the mechanism’s introduction and the use of an internal name suggest the FTC has documents, possibly from former employees, that support its account. “The agency is not guessing here,” one antitrust lawyer said. “It is telling a story it can prove.”
The lawsuit also raises questions about how Amazon explains its auctions to sellers. The company has long advertised its ad system as transparent, with tools that show sellers what they pay and why. The complaint alleges that transparency was incomplete, and that the soft reserve price was concealed even from sellers who asked. If the FTC’s documents support that account, the case could do more than cost Amazon money: it could change what sellers are told about how the marketplace sets prices.
For Amazon, the stakes are strategic as well as financial. Advertising has become the company’s most reliable source of profit, subsidizing the thin margins of its retail business. A ruling that its auction practices were deceptive would not only cost money but would force a redesign of the system, with consequences for the prices sellers see and the revenue Amazon books. The company has defended the system as a marketplace innovation. The question for the courts is whether that defense survives the documents.
