The Antitrust Attorney Blog
Author: Luis Blanquez
On August 31, 2026, the Federal Trade Commission and 22 state attorneys general sued Amazon in the U.S. District Court for the Western District of Washington. The case is Federal Trade Commission v. Amazon.com, Inc., No. 2:26-cv-03097-JHC (W.D. Wash.), before Judge John H. Chun.
For years Amazon told advertisers it ran a second price auction—the winner pays a penny more than the next highest bid. The government alleges Amazon quietly stopped doing that, layered a hidden surcharge on top of the auction result, and charged winners with their own maximum bid. According to the FTC, the scheme “likely illegally extracted over 20 billion dollars” from more than a million advertising customers.
Amazon calls the case “misguided” and it could take years to litigate. But the advertisers who paid those surcharges do not have to wait for the government to finish. The businesses that spent the most on Amazon ads carried the largest overcharges, and for them the question raised by this Complaint is whether to bring a direct-action claim against Amazon for these overcharges.
Disclosure: Bona Law brought an antitrust case against Amazon on behalf of Zulily that is ongoing as of the date of this article.
The Complaint
According to the governments’ complaint, since at least 2012, and in materials that ran through 2026, Amazon told advertisers its Sponsored Ads auctions were “generalized second-price,” or GSP (¶ 2). The pitch appeared in Ads Academy courses, on Amazon’s YouTube channel, in developer guides, in partner agency training, and in decks shown to large advertisers. Amazon’s promise to advertisers was to bid your true value, because you will only ever pay a cent more than the runner up. Amazon’s own training told advertisers their cost “may actually be lower than your bid, because Amazon Ads uses a second price auction.” (¶ 122).
The Complaint alleges that starting in late 2018 for Sponsored Brands and mid 2019 for Sponsored Products, Amazon began overriding those auction results. It ran the GSP auction, produced a price, and then transformed that price into a higher final charge using an undisclosed “soft reserve.” Internally, the government says, Amazon called these “post hoc pricing adjustments” and acknowledged they carried “an element of unfairness” (¶ 49). A markup applied after the auction ran, capped only by the advertiser’s own maximum bid. Portions of the complaint the FTC and the states unsealed on November 5, 2026, now put numbers on that markup. The hidden “soft reserve” can raise prices by as much as 50% on an ordinary day, and by as much as 250% on special shopping days like Prime Day or Black Friday (¶ 50).
In other words, the Complaint effectively alleges that Amazon manufactured a fake second bid. One senior scientist described it as “an invented auction participant representing how much Amazon thinks that particular ad slot is worth” (¶ 10). The head of Amazon Ads described a “proxy 2nd price that we calculate” (¶ 3).
The share of clicks where the winner paid its own maximum bid—the “first price rate,” the opposite of what Amazon allegedly advertised—climbed from roughly four percent in late 2020, to 30 to 40% in 2021, to 70% in 2022, and to about 79% in 2024 (¶¶ 65, 189). For Sponsored Brands, Amazon charged winners their own bid roughly half the time by 2024. Even though Amazon still described the auction as second price, it had, according to the government, become a first-price auction for most advertisers.
Then there is the concealment, which is the heart of the state consumer protection claims and any private fraud theory. The complaint quotes Amazon employees with unusual candor. “We don’t tell them about the surcharge, we let them assume GSP-based” (¶ 52). “All of our proposals are about how we can tune parameters to increase prices and move away from a GSP while hoping that advertisers don’t notice” (¶ 54). When a December 2021 surcharge increase produced a sudden price spike and more than 20 complaints from large advertisers, the government alleges Amazon assembled a response team—including the people who had raised the surcharge—and told customers the spike came from “higher shopper activity” (¶¶ 227–229). It repeated that explanation during Prime Day 2023, when hidden surcharges more than doubled some advertisers’ cost per click. Amazon timed increases to peak shopping events, the complaint says, because holiday demand would “mask” them. In April 2024 it instructed staff to stop using the word “surcharge” in presentations. By July the internal replacement term was “performance premium” (¶¶ 178–179).
The FTC and the states expanded the case in an updated, largely unredacted complaint—filed October 28, 2026, and announced on November 5—that put numbers and names to the scheme. During the 2021 holiday-period, average cost per click rose about 20%, and some advertisers’ costs rose by more than 200% (¶ 228). An internal memorandum credited the hidden reserves with more than $87 million in added worldwide revenue, achieved with “no advertiser escalations” (¶ 250). Amazon also used the reserves to hit financial targets: in 2023, after noting that Display Ads would “miss” its plan “by $40MM,” the head of Amazon Ads told the senior vice president of ad products and technology, “I’d like to pull out all of the stops (without doing unnatural acts) to close our gaps to plan,” adding that “at least $40MM would be helpful” from reserves (¶ 165). During Prime Day 2023, Amazon’s own team reported surcharge increases of over 100% on one large food and beverage advertiser’s campaigns—more than doubling the second-price result—and an internal report said those campaigns “saw significant CPC increases and ROAS decreases destroying campaign performance” (¶¶ 253—255). And in December 2021, when an advertiser asked whether the second price auction had changed “by design or mistake,” an account manager answered that there was “not a bug, or a change in auction style, so no worries there” (¶ 242).
The reason advertisers could not catch this themselves is also alleged in detail.
Amazon’s reporting aggregated results at the keyword level, blended desktop and mobile, and never itemized what a given click actually cost against what the auction produced. An economist inside Amazon flagged the obvious risk: if “we are running a second price auction, but we aren’t and what we are doing charges the advertisers more,” then “that’s a reputational risk” (¶ 53). A 2023 memo went further, conceding that recent changes “are not right from an economics perspective” and that Amazon was “playing with the auction rules.” (¶¶ 79–80).
The FTC sues under Section 5(a) of the FTC Act, which reaches unfair or deceptive practices, and seeks a permanent injunction and monetary relief under Section 13(b). The 22 states sue under their own consumer protection statutes—California’s Unfair Competition Law and False Advertising Law, Washington’s Consumer Protection Act, New York General Business Law sections 349 and 350, and their counterparts elsewhere—seeking injunctions, restitution, rescission of contracts, disgorgement, civil penalties, and fees.
This is a deception and unfair practices case, not a monopolization case. The government did not plead the Sherman Act here. That is a different posture from the Google search, ad-tech, and Play Store cases, where courts found monopoly power and unlawful maintenance of it. The theory against Amazon is that it lied about how it charged, not that it holds and abused monopoly power in an ad market.
Who was harmed?
The government alleges in the Complaint that the scheme reached roughly 1.2 million U.S. advertising customers, including more than 500,000 small and medium-size businesses. Amazon’s advertising arm booked nearly $20 billion in a single recent quarter, and it fell hardest on advertisers who bid high because they trusted the second price promise—the ones who, in Amazon’s own words, “bid far higher than what they are willing to pay” precisely “because they assume its GSP” (¶ 143).
Those seem to include, as examples: (1) large brands running always on Sponsored Products and Sponsored Brands campaigns; (2) Agencies managing spend across many client accounts; (3) High volume sellers and vendors in competitive categories at the top of the auction; (4) And companies using automated bidding, where the surcharge compounded because the advertiser never saw the bid being entered.
There is no doubt that one or more firms will file a class action relating to these allegations. But the advertisers Amazon allegedly overcharged the most are the ones a class serves least well, because their damages justify their own case. A direct action might seek that advertiser’s actual overcharge, measured against the second price result Amazon’s own systems computed before inserting the reserve.
The private theories here are mostly contract and fraud, not antitrust. An advertiser that was charged more than the second price auction produced, after being told it would pay the second price, may have a breach of contract claim, and—given the alleged concealment—it may have claims for fraud, fraudulent concealment, and unfair or deceptive practices under state law.
Image by Wynn Pointaux from Pixabay