FTC Sues Amazon Over Hidden Surcharges on Sponsored Search Ads

The Federal Trade Commission (FTC), alongside attorneys general from 22 states, has launched a massive lawsuit against Amazon, accusing the e-commerce titan of operating a covert ad pricing scheme for over seven years.

In a joint complaint filed in the U.S. District Court for the Western District of Washington, regulators claim that Amazon quietly manipulated search advertising auctions. The lawsuit asserts that Amazon misled over one million sellers and brand partners, secretly extracting tens of billions of dollars in illegal revenue while indirectly driving up product prices for everyday online shoppers.

When sellers bid on keywords to show up at the top of Amazon search results, via Sponsored Products, Sponsored Brands, or Display Ads, Amazon tells them it runs a traditional Generalized Second-Price (GSP) auction. Under standard GSP rules, the winning bidder pays only one cent more than the second-highest bid, encouraging advertisers to bid aggressively without fear of overpaying.

However, the FTC alleges that starting in 2019, Amazon began overriding its own system by introducing undisclosed surcharges, internally referred to as a “soft reserve price”. Instead of letting the second-place bid determine the price, Amazon’s system allegedly bumped up costs so that advertisers were forced to pay their full maximum bid.

The numbers cited in the lawsuit outline a drastic shift:

• 2021: Advertisers paid their maximum bid price between 30% and 40% of the time.
• 2022: That frequency jumped to 70% as surcharges expanded.
• 2024: Advertisers ended up paying their maximum bid price roughly 80% of the time.

Regulators argue that Amazon systematically inflated these hidden fees during normal shopping windows and cranked them up even higher during high-volume events like Prime Day and Black Friday.

Internal documents also showed that Amazon staff warned against revealing the surcharges to advertisers, noting that transparency would cause “irrevocable damage to advertiser trust” and trigger a “downward spiral” of reduced ad bids.

Amazon has strongly rejected the allegations, releasing an official response calling the lawsuit fundamentally flawed. The retailer claimed that regulators cherry-picked outdated communications and failed to understand how digital advertising markets function.