FTC alleges Amazon ad practices cost clients over $20bn

The US Federal Trade Commission alleges that Amazon may have obtained more than $20 billion from about 1.2 million advertisers through changes to its online advertising auctions.

FTC and representatives of 22 states have filed an updated complaint against the marketplace. Regulators say Amazon secretly raised the minimum price of advertising slots after advertisers placed their bids, over many years using hidden markups in auction results to increase advertising revenue and meet internal financial plans.

According to AdNews, Amazon could raise advertising prices by as much as 50% on ordinary days and 250% during major sales events, including Prime Day and Black Friday. The complaint targets the mechanism behind those increases, not only the published rate card.

How does the “soft reserve” system work?

Under the alleged system, fictitious advertisers who did not exist took part in auctions and pushed bids upward until they reached a level set by the organizers. Their role was to create competition that the filing says was not real.

In a traditional auction, the winner paid only slightly more than the participant with the second-highest bid. After introducing the alleged changes, Amazon could also set a higher minimum price once the auction had ended.

Advertisers still placed bids, but the platform could allegedly change the clearing price after the bidding decision had been made. That is the core of FTC’s claim: the auction process itself, rather than a disclosed increase in rates, generated extra charges.

Amazon rejects the allegations. “Advertisers paid the same, but received more relevant impressions and better results,” the company said.

What do the figures show?

FTC cites the 2021 holiday season as a test case. The average cost per click for advertisers rose 20% during that period, while some individual increases exceeded 200%.

The following year, extra markups generated $87 million in additional revenue for Amazon worldwide, according to the regulator. FTC links those sums to the alleged system of hidden auction adjustments rather than to a separately disclosed advertising product.

On the regulator’s account, advertisers absorbed the first increase. Higher spending on placement then fed into Amazon’s pricing decisions for products, which the agency says contributed to higher prices for shoppers.

How did consumers bear the cost?

FTC argues that Amazon transferred the advertising burden through the merchandise itself. Chairman Andrew Ferguson said: “This practice affected even the cost of food and everyday products.”

FTC’s consumer claim reaches food and everyday goods, not only discretionary purchases. The mechanism runs from a hidden rise in auction clearing prices to higher advertising costs, then to product prices. Amazon disputes that chain and says its auction changes improved delivery rather than simply increasing what advertisers paid.

FTC treats the effect as systemic because the alleged scheme reached about 1.2 million advertising clients. Its claimed loss of more than $20 billion and the stated 250% peak increase define the scale of the case.

What other legal pressure does Amazon face?

The advertising complaint is not Amazon’s only dispute with US regulators. Last year, the company agreed to pay $2.5 billion in fines and compensation over Prime subscriptions that were easy to enroll in but difficult to cancel.

Next year, Amazon is due to face trial in a separate case alleging an illegal monopoly and abuse toward sellers. The seller case is not the auction complaint, but it forms part of a wider sequence of regulatory scrutiny.

The two matters test different parts of the platform. One concerns the terms and mechanics of advertising auctions; the other concerns Amazon’s wider conduct toward marketplace sellers. The advertising case adds a financial dimension to that broader conflict because the regulator links hidden auction changes to both advertiser losses and consumer prices.

For sellers using Amazon’s advertising system, the practical question is precise: can a marketplace alter the price floor after bids are placed and still call the outcome a competitive auction? FTC says Amazon did so and puts the resulting loss above $20 billion. Amazon says advertisers paid no more and received better results.

The updated complaint sets out allegations, not a final judicial finding. Its economic significance remains material for marketplace participants: the filing links hidden auction changes to $87 million in extra global revenue, a 20% average holiday click-cost increase in 2021 and a 250% peak price increase.