Think of your ad budget as poker chips. Amazon told you the game: second-price auction, meaning if you win, you pay just one cent above the next-highest bid. Bid aggressively, because you’ll never pay your full hand. Except, according to the FTC, Amazon was quietly dealing from a stacked deck.
On August 31, 2026, the FTC and a bipartisan coalition of 22 states filed a 181-page complaint in federal court in Seattle. The charge: Amazon secretly manipulated its Sponsored Products, Sponsored Brands, and Sponsored Display auctions. The alleged mechanism was “soft reserve pricing” — an undisclosed floor that replaced genuine second-price outcomes with a proxy value Amazon calculated itself.
An Amazon Senior Scientist described it internally as “an invented auction participant representing how much Amazon thinks that particular ad slot is worth.”
That invented participant quietly appeared around late 2018 and became widespread by 2019. A few figures tell the story fast:
- By 2024, Sponsored Products advertisers paid their full winning bid approximately 80% of the time
- Ad costs rose roughly 50% on major shopping days, according to regulators’ filings
- Amazon intervened in auctions to raise the minimum price 70%–80% of the time in recent years
That last stat matters. Advertising isn’t a side hustle for Amazon — it’s a primary profit engine generating over $68 billion annually. Regulators are now arguing a significant portion of that revenue was built on a misrepresentation.
The alleged harm reaches more than 1.2 million advertisers, including over 500,000 small and medium-sized businesses explicitly told they were participating in second-price auctions. The FTC estimates the soft reserve system generated more than $20 billion in additional advertiser costs over roughly seven years. Those costs don’t evaporate — they flow downstream to consumers paying too much already navigating search results that look more like a sponsored-listing showcase than an organic marketplace.
Amazon Calls It a Misunderstanding. The Numbers Don’t Agree With Each Other.
Amazon disputes the FTC’s legal theory and says its own data tells the opposite story.
Amazon’s response is pointed. The company called the lawsuit “misguided” and said the FTC’s complaint “fundamentally misunderstands how advertisers operate,” arguing that advertisers optimize based on real-world campaign performance, not auction architecture descriptions.
Amazon also claims it provided guidance on reserve pricing, and that its relevancy-focused approach saved advertisers over $8 billion between 2021 and 2025. It further argues the average winning bid for Sponsored Products search ads fell roughly 50% from 2019 to 2024 — the direct inverse of the FTC’s overcharging narrative.
Both sides can’t be right. That contradiction is precisely what a federal court in Seattle will now untangle.
If the FTC prevails, the consequences extend well beyond Amazon. Retail media networks across the industry — Walmart Connect, Instacart Ads, and their peers — could face pressure to fully disclose any reserve pricing, proxy bidding, or post-auction price adjustments they currently treat as proprietary mechanics. For the million-plus advertisers still running campaigns on Amazon today, the question is straightforward: were you bidding against real competitors, or against a number Amazon invented? The answer is still pending.
