Amazon Promised a Penny Over the Next Bidder. The FTC Says You Paid Your Own Bid 80% of the Time.

The FTC and 22 state attorneys general sued Amazon on August 31 over how it prices search ads. One number carries the case: Amazon told advertisers they’d pay a cent more than the next highest bidder, and by 2024, the complaint says, Sponsored Products advertisers paid their own full bid about 80% of the time.

Worth knowing even if you’ve never bought an Amazon ad. But a second thread runs through the 181-page filing that almost no coverage has picked up, and it reaches every marketing team. Amazon’s own executives wrote down, more than once, that the automatic bidding tools advertisers had adopted were the reason nobody could tell.

What the complaint says

Amazon auctions ad slots against keyword searches on its store. For years it described those as second-price auctions, the long-standing standard for digital placements. In a second-price auction you’re charged just above the runner-up, so bidding your true maximum is safe. That safety is the entire reason the format exists.

Starting in 2019, the complaint alleges, Amazon added an undisclosed surcharge it called internally a “soft reserve price,” pushing the price above what the auction produced. One internal document describes the pricing as having “a surcharge hidden in it.” Another acknowledges an “invented auction participant,” which the FTC calls a shill bid.

The share of the time advertisers paid their own bid climbed from 30-40% in 2021, to 70% in 2022, to roughly 80% by 2024.

“When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering,” said FTC Chairman Andrew N. Ferguson.

The FTC says the scheme “likely extracted tens of billions of dollars” from more than a million brands and sellers, over 500,000 of them small and medium businesses. Hold that phrasing. “Tens of billions” is the government’s language; the $20 billion figure in most headlines is a reconstruction.

The part about automation

By 2019, most advertisers had stopped setting bids by hand. Amazon offers what it calls “dynamic bidding,” which it says moves bids up to 100% in either direction, and rule-based bidding, up to 500% against a return-on-ad-spend goal. The complaint states automatic strategies can currently move a bid up to 900% for certain placements.

Amazon’s auction leadership understood what that did to an advertiser’s ability to check the math. A briefing document prepared by the head of Sponsored Products auctions, before a 2020 meeting between the VP of Sponsored Products and the SVP of Amazon Ads, says that because of automatic bid adjustments, sometimes called proxy bidding or smart bidding:

“an advertiser doesn’t even know what bid is being entered (and thus can’t know if the CPC charged was first price).”

Hold that against your own account. The tool that took bidding off your plate also removed the one number you’d need to notice an overcharge. Not a side effect somebody spotted later. It’s written down in 2020, for two senior executives, as a known property of the system.

The complaint goes further. It alleges that once an auction completes, Amazon hands the results, including advertisers’ unsealed bids, to its pricing teams “for the sole purpose of using them as inputs in algorithms that would then calculate an artificial auction price above the amount of the second-place bid, while not exceeding the winning bid.” The stated goal: “to generate higher prices that are undetectable to its auction participants.”

Undetectable is the operative word, and automation is what made it achievable.

Two details nobody at Amazon missed

A 2023 internal memo on auction economics, written by Amazon employees, concedes that undisclosed reserve prices were not “doing the right thing for the advertisers.” Since Amazon was “playing with the auction rules,” the memo says, the “customer-obsessed thing to do is to shade the bids on behalf of the advertisers; but we never do that for our onsite inventory.” Bid shading is the standard defense against a first-price auction: you deliberately bid under your true value, because you’ll be charged what you bid. The memo grants advertisers needed it and says Amazon withheld it.

Then, in 2024, per the complaint, Amazon published an article promoting the bid-shading algorithm in its own demand-side platform, explaining that the gap between first-price and second-price auctions “impacts bidding strategies and pricing dynamics.” Amazon sold shading as a service on one surface while, the FTC alleges, running the auction type that requires it on another.

One advertiser got close and got waved off. A manufacturer, frustrated by Amazon’s “evasive responses to basic functionality questions” about how CPCs were set, recorded that Amazon assured it in February 2024 that “bid modifiers cap at $0.01 above the second-highest bid,” then affirmed in October that Amazon “does not employ…algorithms designed to maximize ad profits.” The manufacturer’s own note ends: “The latest communication contradicts those assurances.”

Amazon’s answer

Amazon called the suit misguided, saying the complaint “fundamentally misunderstands how advertisers operate.” Its core argument is behavioral: “Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics.”

It brings numbers. Average winning bids fell 50% from 2019 to 2025. Conversion rates grew 24% from 2021 to 2025. Average cost-per-click stayed flat against inflation from 2019 to 2024. Roughly 92% of placed ads don’t go to the highest bid. On the training materials the FTC cites, Amazon says three courses drew “a combined 1,849 enrollments and 779 completions.”

That last point deserves credit: if almost nobody took the course, the course deceived almost nobody. It’s also narrower than the claim it answers, since the FTC alleges the second-price representation ran on Amazon’s website, in public materials, and through hundreds of sales staff.

The performance defense is stronger, and automation complicates it. Amazon says advertisers respond to results rather than auction theory. The complaint’s reply, in Amazon’s own executives’ words, is that automated bidding is what stopped advertisers from tying a result to a price.

What to do this week

Nothing here is decided. It’s a complaint, Amazon disputes it, the Commission vote to file was 2-0 in the Western District of Washington, and no refund is coming soon.

Find out what you’re actually bidding. If your Amazon campaigns run on automatic bidding, the number you set is not the number entering the auction, and the multiplier can be large. Put your bid, your adjustment settings and your realized CPC side by side. Most teams have never lined those three up, which is exactly the gap that 2020 briefing described.

Then ask the same question everywhere else. eMarketer’s Zak Stambor noted that regulators allege the missing disclosure left advertisers to “effectively bid against themselves while believing they were competing with others.” That failure mode travels. It’s available wherever one company sets the price, runs the auction, and supplies the automation you bid with. We covered the same shape when Google changed how automation assigns advertiser liability, and again when a redirect change quietly raised the cost of rank data.

Automated bidding isn’t the villain here. The lesson is narrower and more useful: every automation you adopt is also instrumentation you give up, so it pays to know which number you just stopped being able to see. This complaint is the first time we get to read a platform’s internal answer to that question.