Amazon disputes FTC, 22 states’ allegations of secretly inflating advertising prices by up to 250%

WASHINGTON, D.C. — Amazon is pushing back against a lawsuit filed by the Federal Trade Commission and 22 states, including New Jersey, accusing the online retailer of secretly manipulating its advertising auctions to inflate prices by as much as 250% while misleading advertisers about the reasons for the increases.

In a response to the lawsuit, Amazon called the FTC’s allegations misguided and strongly disputed claims that it deceived advertisers about its Sponsored Ads pricing and auction system. The company maintained that its advertising practices benefit both advertisers and consumers by prioritizing relevant advertisements over those with the highest bids.

The FTC and participating states originally filed the lawsuit in August in the U.S. District Court for the Western District of Washington. Newly unredacted portions of the complaint allege that Amazon imposed hidden surcharges on advertisers to increase revenue and meet corporate financial targets.

According to the complaint, Amazon allegedly increased advertising prices by as much as 50% above auction results on ordinary shopping days and by as much as 250% during major shopping events, including Prime Day and Black Friday. The alleged practices affected advertisers of various sizes, including small businesses and major corporations.

During the 2021 holiday shopping season, Amazon allegedly increased advertisers’ average cost per click by 20%, with some advertisers experiencing increases exceeding 200%, according to the complaint. During the 2022 holiday season, the company allegedly raised its hidden surcharges to generate an additional $87 million in worldwide revenue.

The complaint also details the impact on individual advertisers. During Prime Day in 2023, one large food and beverage advertiser reportedly experienced advertising price increases exceeding 100%. According to the FTC, Amazon internally acknowledged that the higher advertising costs reduced the advertiser’s return on advertising spending and were “destroying campaign performance.”

Amazon disputed the FTC’s characterization of its auction system, explaining that its advertising platform uses machine learning to prioritize advertisements based on relevance to shoppers rather than simply selecting the highest bidder. The company said it began testing advanced relevance models in 2014 and had implemented them across its store advertising by 2019.

Amazon said it also introduced what it calls soft reserve prices, which are designed to reflect the estimated market value of advertising placements, along with hard reserve prices that establish minimum bids for participation in auctions.

According to the company, advertisers set the maximum amount they are willing to pay for a click, and they are never charged more than their bids. Amazon said its auction system considers both advertising relevance and bid amounts when determining which advertisements appear to shoppers.

The company also disputed claims that advertisers suffered financial harm, estimating that advertisers saved more than $8 billion between 2021 and 2025 because its system incorporated advertising relevance rather than selecting advertisements based solely on bid amounts.

Amazon said average winning bids for Sponsored Products search advertisements declined 50% between 2019 and 2024, while average cost per click remained flat when adjusted for inflation.

The FTC’s newly disclosed allegations also describe how Amazon executives allegedly used hidden surcharges to help meet financial targets. In 2023, company executives discussed finding an additional $40 million in revenue to close a gap in corporate financial projections, according to the complaint.

The head of Amazon Ads reportedly sent an email to Amazon’s senior vice president of advertising products and technology discussing efforts to generate additional revenue.

“I’d like to pull out all of the stops (without doing unnatural acts) to close our gaps to plan. I suspect that the entire gap won’t be closed, so whatever can be done with reserves (ideally at least $40MM would be helpful).”

Amazon challenged the FTC’s interpretation of internal communications, arguing that the agency relied on a small number of emails and documents to support allegations of widespread deception. The company said individual emails may reflect brainstorming or preliminary ideas rather than final decisions or company policy.

Federal and state officials also allege that Amazon misled advertisers who questioned unexpected increases in advertising costs. According to the complaint, some advertisers specifically asked whether Amazon had changed its second-price auction process, which determines advertising costs. Rather than disclosing the alleged hidden surcharges, Amazon representatives attributed the increases to greater competition among advertisers.

In one instance, an advertiser asked whether “something has changed with respect to the second price auction process, either by design or mistake.” An Amazon account manager responded:

“After reaching out to the product specialist team we were informed there is not a bug, or a change in auction style, so no worries there. This year the marketplace is even more crowded than any year previous, and we are seeing the spike in CPCs [costs-per-click] as a direct reflection.”

The FTC alleges that those explanations concealed Amazon’s own role in increasing advertising prices beyond the amounts determined through its auction system.

Amazon acknowledged that some older educational videos and training materials contained outdated or simplified descriptions of its advertising auctions. However, the company said those materials had limited reach and were not part of the primary advertising management system used by advertisers.

The company said its advertising campaign management platform has explained since 2018 that bids represent the maximum amount advertisers could be charged. Amazon also said it has updated its help materials to explicitly describe reserve prices and implemented additional reviews and training to improve communication about its auction system.

Amazon further rejected suggestions that its practices harmed consumers, arguing that the FTC’s complaint does not establish that advertising costs resulted in higher consumer prices. The company maintained that its advertising system has improved performance for advertisers while helping shoppers discover more relevant products.

The lawsuit was brought by the FTC and attorneys general from Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington.

Amazon said it has provided the FTC with information about its advertising system and intends to defend its practices in court. The allegations remain part of ongoing litigation and have not been established as findings of fact by a court.

This story has been updated to include Amazon’s response to the allegations made by the Federal Trade Commission and 22 states regarding its advertising practices.