FTC Alleges Amazon Inflated Ad Auction Prices by Up to 250%

Key Takeaways: 

• The FTC alleges Amazon used hidden reserve pricing to raise Sponsored Products auction costs by up to 250% during peak shopping events.
• The complaint claims Amazon’s pricing practices generated $87 million in added revenue during the 2022 holiday season alone.
• More than one million advertisers are affected as Amazon expands AI-driven campaign automation tools like Ads Agent.

The Federal Trade Commission and 22 state attorneys general unsealed new details last week in their case against Amazon, alleging the company used undisclosed charges to inflate advertising auction prices for more than a million customers. The updated complaint, filed in the U.S. District Court for the Western District of Washington, builds on a lawsuit the FTC brought in August.

What Does the FTC Allege About Amazon’s Ad Pricing?

According to the unredacted complaint, Amazon secretly raised prices above competing bid results by as much as 50% on normal days and up to 250% during major shopping events such as Prime Day and Black Friday. The agency says the increases stemmed from undisclosed “soft reserves,” which added charges on top of results generated by Amazon’s second-price auction system.

During the 2021 holiday season, the FTC alleges Amazon’s average cost-per-click rose 20%, with some advertisers facing increases of more than 200%. One large food and beverage advertiser reportedly saw price increases of more than 100% during Prime Day 2023. Amazon’s internal communications, cited in the complaint, acknowledged the increases were “destroying campaign performance” for that advertiser’s return on ad spend.

How Did Amazon Respond to Advertiser Concerns?

The complaint alleges that when advertisers questioned whether “something has changed with respect to the second price auction process,” an Amazon account manager denied any system change and attributed the cost spike to increased marketplace competition. The FTC characterizes that explanation as false.

Amazon disputes the allegations. The company says soft reserves estimate the market value of an ad placement and that advertisers never pay more than their maximum bid. Amazon also maintains its auction system weighs both bid amount and relevance, and that price changes reflect natural competition rather than manipulation. The company has said advertisers saved more than $8 billion between 2021 and 2025, and that average winning bids for Sponsored Products search ads fell 50% from 2019 to 2024.

What Role Did Internal Revenue Targets Play?

The complaint alleges that in 2023, Amazon executives discussed closing a $40 million gap to meet corporate revenue targets. An email cited in the filing, sent by the head of Amazon Ads to the senior vice president of ad products and technology, requested that reserves help close the gap.

“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).”

The FTC says this goal shaped pricing strategy during that period, generating $87 million in worldwide revenue from surcharges during the 2022 holiday season.

Why Does This Case Matter as Amazon Expands AI Ad Tools?

The allegations surface as Amazon pushes advertisers toward automated tools such as Ads Agent, which the company says delivered 67% higher return on ad spend in early beta testing. That figure is self-reported and has not been independently verified. As automation handles more campaign decisions, advertisers have limited visibility into how underlying auction prices are calculated, a concern the pending case brings into sharper focus.

What Should Advertisers Do Now?

Advertisers can compare cost-per-click, conversion rates, and return on ad spend across seasonal periods rather than relying on a single data point. Reviewing Amazon’s reporting tools before expanding automated campaigns, and testing manual campaigns compared to automated ones, can help clarify actual performance gains. Requesting detailed pricing explanations from Amazon remains an option as the case proceeds.

The lawsuit remains pending, with Amazon and regulators offering competing explanations of how the auction system operates. The outcome will affect not just legal liability but how much transparency advertisers can expect as platforms automate more of the advertising process.