New Jersey joins FTC, 21 states in lawsuit accusing Amazon of rigging advertising auctions
TRENTON, N.J. — New Jersey Attorney General Jennifer Davenport and the Division of Consumer Affairs have joined the Federal Trade Commission and a bipartisan coalition of 21 other states in a lawsuit accusing Amazon of secretly manipulating its advertising auctions and overcharging hundreds of thousands of businesses for more than seven years.
The lawsuit alleges Amazon rigged auctions used to determine prices for advertising products on its platform, affecting more than 500,000 small- and medium-sized businesses. The complaint alleges Amazon concealed hidden surcharges from advertisers and generated tens of billions of dollars through the practices.
“For years, Amazon has been misrepresenting how it sets the prices to advertise on the most coveted real estate on its website,” said Attorney General Davenport. “It promised competitive auctions to set prices and then quietly replaced those results with inflated prices designed to pad its own profits. And it applied those secret upcharges to advertisements for essentials like food, grocery, and pharmacy products, which translate to higher prices for New Jersey consumers. Today’s lawsuit shows that we are standing up for Main Street businesses and consumers over billionaires that use their dominance in the market to worsen the affordability crisis for everyone.”
The lawsuit centers on advertising auctions used to place Sponsored Product ads, Sponsored Brands ads and Display Ads alongside search results on Amazon’s online store. Advertisers bid for placement tied to keywords searched by consumers.
According to the complaint, Amazon represented to advertisers that it operated “second price” auctions, in which the winning advertiser would pay “one cent more than the next highest bidder.” The lawsuit alleges that, in practice, Amazon charged Sponsored Products advertisers their own winning bid nearly 80% of the time, effectively turning what was presented as a second-price auction into a first-price auction.
“Honest auction markets depend on trust, fair competition, and transparent dealing,” said DCA Acting Director Christopher Peterson. “New Jersey businesses competing for space to advertise on Amazon have been systemically cheated. We are taking action to hold Amazon accountable and to protect the small and medium-sized businesses that power our economy.”
The complaint alleges that beginning in 2019, Amazon changed its auction rules without notifying advertisers by adding an undisclosed surcharge internally referred to as a “soft reserve price.” The lawsuit alleges the change caused advertisers to pay substantially more than the price determined by the advertised auction system.
According to the complaint, an Amazon executive internally described the price paid by advertisers as a “proxy 2nd price that we calculate,” while another internal document said the company used an “invented auction participant” to increase prices. The lawsuit alleges those practices essentially amounted to shill bids.
The complaint alleges the practices generated tens of billions of dollars in revenue for Amazon, including through increased advertising prices on high-volume shopping days such as Prime Day and Black Friday.
New Jersey officials also allege Amazon concealed the pricing system because revealing it could cause advertisers to lower their bids. According to the complaint, Amazon employees acknowledged internally that advertisers believed the company was using a generalized second-price auction and therefore often submitted higher bids under the assumption they would not have to pay their full bid amount.
For Sponsored Products ads, the complaint alleges the percentage of times advertisers paid their full bid increased from between 30% and 40% in 2021 to 70% in 2022 and approximately 80% in 2024.
Davenport and the Division of Consumer Affairs allege Amazon’s conduct violated New Jersey’s Consumer Fraud Act through deceptive, unconscionable and abusive commercial practices. The FTC alleges violations of the Federal Trade Commission Act involving misrepresentation, deceptive auction manipulation, concealment, unfair omissions and unfair billing practices.
Attorneys general from Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington also joined the lawsuit.
