Technology and AI
Twenty two states join a suit alleging a hidden surcharge inside an advertising auction
By Staff Writer | 1 September 2026
The United States competition and consumer protection regulator and 22 state attorneys general have sued Amazon, alleging that for more than seven years it told advertisers they were bidding in a second price auction while charging them a concealed surcharge. The complaint says the practice has likely taken tens of billions of dollars from more than a million brands and sellers.
The Federal Trade Commission filed the complaint on 31 August in the United States District Court for the Western District of Washington, with the attorneys general of 22 states alongside it. The vote authorising staff to file was 2-0. The defendants' advertising customers are pleaded at more than one million brands and sellers, of whom over 500,000 are small and medium sized businesses.
What is alleged is narrow and mechanical, and that is what makes it worth reading. Advertisers bid against keywords for Sponsored Product ads, Sponsored Brands ads and Display Ads placed beside search results. Amazon is said to have told them, on its website, in training videos and through its sales staff, that these were second price auctions: the highest bidder wins and pays one cent more than the next highest bid.
Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers.
Andrew N. Ferguson, Chairman of the Federal Trade Commission
Why the type of auction changes the bid
A bidder in a first price auction pays whatever it bid, so it bids below its true value and shades that bid downwards over repeated rounds until it finds the least it can pay and still win. A bidder in a second price auction has no such incentive, because it pays the runner up's number rather than its own. It can therefore bid close to what the placement is actually worth to it, and it will bid higher.
The auction rule is not a technicality. It sets the number every advertiser writes down, and a bidder told the wrong rule bids the wrong amount every time it bids.
The complaint alleges that from 2019 the rules changed without notice, through an undisclosed charge referred to internally as a soft reserve price, and that one internal document described the auction as having a surcharge hidden in it. The executive in charge of the advertising business is quoted in the complaint saying that the price paid is not set by an actual bidder but is a proxy second price that the company calculates, and another document is said to describe an invented auction participant used to raise prices.
The number that moves through the pleading
The clearest figure in the complaint is the proportion of the time a Sponsored Products advertiser ended up paying its own bid rather than the runner up's. That is pleaded at between 30 and 40 per cent in 2021, 70 per cent in 2022 and approximately 80 per cent in 2024. A second price auction in which four bids in five are settled at the winner's own number is a first price auction wearing the wrong label.
The complaint further alleges that prices were raised more steeply on high volume trading days such as Prime Day and Black Friday, that the increases were ramped up gradually to disguise them, and that advertisers who asked directly whether the auction format had changed were given false and misleading answers. Internal material quoted in the pleading records the fear that disclosure would cause irrevocable damage to advertiser trust and a downward spiral of lower bids.
None of this has been tried, and every allegation above is an allegation. What is already settled is the commercial point underneath it. An advertising budget is priced off an assumption about how the auction clears, that assumption is supplied by the platform, and the platform is also the counterparty. Any business buying placement on a marketplace it does not control is relying on a description of a mechanism it cannot inspect.