North Carolina Attorney General Jeff Jackson and the Federal Trade Commission are accusing Amazon of running a hidden advertising pricing scheme that they say overcharged businesses by tens of billions of dollars.
Jackson wrote in a post on X that North Carolina had joined a lawsuit against Amazon over what he described as an alleged “ad-rigging scheme,” claiming the company found a way to add small amounts to a huge number of advertising transactions.
At the center of the case is how Amazon prices its Sponsored Product advertisements.
According to Jackson, Amazon told advertisers that it used a second-price auction system, meaning the winning advertiser would generally pay only slightly more than the next-highest bid. For example, if one business bid $1 and the next-highest bid was 50 cents, the winner would expect to pay roughly 51 cents.
The lawsuit alleges that Amazon instead used information from the auction to increase the price paid by the winning advertiser quietly. Jackson said the company allegedly tested how much it could increase these hidden charges without advertisers noticing, raised them further when businesses did not respond and provided misleading explanations when advertisers began asking questions.
The Federal Trade Commission, along with attorneys general from 22 states, filed the lawsuit in federal court in Washington state. The complaint alleges that Amazon secretly increased advertising prices for more than seven years, affecting more than one million brands and sellers and potentially generating tens of billions of dollars in additional revenue.
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The FTC said the alleged practices affected more than 500,000 small and medium-sized businesses that purchased advertising placements on Amazon.com and its mobile app.
Amazon’s advertising auctions cover Sponsored Products, Sponsored Brands and Display Ads that appear alongside search results when consumers look for products on the platform. Advertisers compete for those placements by submitting bids for specific keywords.
The FTC alleges that Amazon publicly presented these auctions as generalized second-price, or GSP, auctions. Under that system, the winning advertiser generally pays an amount based on the next-highest bid rather than automatically paying its own maximum bid.
The complaint alleges that Amazon’s actual system began operating differently in 2019, when the company introduced what internal documents allegedly referred to as a “soft reserve price.” The FTC says this undisclosed pricing mechanism allowed Amazon to push the amount paid by advertisers above the price that would have resulted from a genuine second-price auction.
The agency alleges that Amazon effectively created an additional, artificial bid to raise the price. Internal documents cited in the complaint allegedly described the practice as using an “invented auction participant” and a “proxy 2nd price.”
The FTC claims the change was driven by Amazon’s desire to increase advertising revenue. According to the complaint, company executives recognized that the pricing system allowed Amazon to collect more money than it could have generated through normal competition between advertisers.
The alleged impact grew over time. The FTC says Sponsored Products advertisers paid their full winning bid roughly 30% to 40% of the time in 2021. That figure allegedly climbed to about 70% in 2022 and approximately 80% in 2024.
The agency argues that the difference matters because advertisers make different bidding decisions depending on how an auction works. In a true second-price auction, businesses can be more comfortable bidding closer to what an advertisement is actually worth because they expect to pay only what is necessary to win. In a first-price auction, advertisers have a greater incentive to lower their bids to avoid paying more than necessary.
The FTC alleges that Amazon understood this distinction and deliberately kept advertisers from knowing that the pricing system had changed.
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The complaint claims Amazon monitored advertiser behavior and adjusted the hidden charges while trying to avoid detection. The agency also alleges that Amazon increased surcharges around major shopping events, including Prime Day and Black Friday, when advertising demand was particularly high.
The lawsuit further alleges that Amazon employees and executives were concerned that revealing the pricing changes would damage the company’s relationship with advertisers. According to the complaint, Amazon feared businesses would respond by lowering their bids, potentially reducing the company’s advertising revenue.
FTC Chairman Andrew N. Ferguson said the alleged conduct had a broader impact because businesses could pass higher advertising costs on to consumers.
“When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering,” Ferguson said. “Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers. The FTC under President Trump won’t allow this deception to continue.”
The lawsuit was authorized by a 2-0 vote of the FTC and was filed in the U.S. District Court for the Western District of Washington.
Jackson said the case is ultimately about more than advertising fees, pointing to affordability, competition and transparency in the marketplace.
“My thanks to the big bipartisan team on this, from AGs across the country to the FTC,” he said.