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Case 2:26-cv-03097
Document 1
Filed 08/31/26
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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
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FEDERAL TRADE COMMISSION,
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STATE OF ALASKA,
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STATE OF ARIZONA, ex rel. Kristin K. Mayes,
Attorney General,
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Case No. ____________
PEOPLE OF THE STATE OF CALIFORNIA,
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STATE OF COLORADO, ex. rel. Philip J. Weiser,
Attorney General,
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STATE OF FLORIDA,
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STATE OF IDAHO,
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STATE OF ILLINOIS,
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STATE OF INDIANA, ex rel. Todd Rokita,
Attorney General,
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STATE OF IOWA,
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COMMONWEALTH OF KENTUCKY, ex rel.
Russell Coleman, Attorney General,
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STATE OF LOUISIANA,
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CONSUMER PROTECTION DIVISION,
OFFICE OF THE MARYLAND ATTORNEY
GENERAL,
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COMPLAINT FOR PERMANENT
INJUNCTION, MONETARY
JUDGMENT, AND OTHER RELIEF
STATE OF NEBRASKA, ex rel. Michael T.
Hilgers, Attorney General,
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STATE OF NEW JERSEY, by Attorney General
Jennifer Davenport,
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STATE OF NEW YORK,
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STATE OF NORTH CAROLINA, ex rel. Jeff
Jackson, Attorney General,
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COMPLAINT - i
Case No. __:___-cv-______
FEDERAL TRADE COMMISSION
One Bowling Green, Suite 318
New York, NY 10004
(212) 607-2829
Case 2:26-cv-03097
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STATE OF OKLAHOMA,
COMMONWEALTH OF PENNSYLVANIA,
Office of Attorney General, By Attorney General
David W. Sunday, Jr.,
STATE OF RHODE ISLAND,
STATE OF SOUTH CAROLINA, ex. rel. Alan
Wilson, in his official capacity as Attorney General
of the State of South Carolina,
STATE OF VERMONT, and
STATE OF WASHINGTON,
Plaintiffs,
v.
AMAZON.COM, INC., a corporation,
Defendant.
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COMPLAINT - ii
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TABLE OF CONTENTS
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INTRODUCTION ........................................................................................................................ 1
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JURISDICTION AND VENUE ................................................................................................... 6
PLAINTIFFS ................................................................................................................................. 6
DEFENDANT.............................................................................................................................. 13
COMMERCE .............................................................................................................................. 14
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OVERVIEW OF AMAZON'S ADVERTISING AUCTIONS ............................................... 14
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BACKGROUND ......................................................................................................................... 26
A.
Search Advertising Auctions ............................................................................................ 26
1.
Types of Auctions ............................................................................................................. 26
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2.
Use of Auctions in Digital and Search Adve1tising .......................................................... 28
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DEFENDANT'S BUSINESS ACTIVITIES ............................................................................. 31
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A.
Amazon's "Sponsored Ads" Search Adve1tising Products .............................................. 31
B.
Amazon's Second Price Auction Representations to Adve1t isers .................................... 36
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1.
Amazon's Representations in Training and Marketing Materials .................................... 37
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2.
Amazon's Second Price Auction Representations Are Repeated by its Account Managers,
and Even the Head of Alnazon Ads .............................................................................................. 44
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3.
Alnazon Is Aware That Its Second Price Auction Representations Have Been Widely
Understood and Repeated By Alnazon's Paitner Network and Throughout the Industiy ............ 47
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4.
Alnazon's Adve1t ising Customers Believe That It Conducts Genuine Generalized Second
Price Auctions, As Prolllised ........................................................................................................ 49
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C.
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1.
In 2018, Alnazon Began Inflating Prices Above Second Price Auction Results Using
Secret Reserve Pricing .................................................................................................................. 53
2.
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Alnazon's Implementation and Concealment oflts Reserve Pricing Systems ................. 53
Alnazon Knew Its Auction Results Reporting Hid Its Reserve Pricing ........................... 58
3.
Alnazon Designed and Implemented Its Undisclosed Reserve Pricing Systems to Avoid
Detection ....................................................................................................................................... 60
4.
Alnazon Placed Guai·drails on Reserve Prices to Keep Surcharges Secret ...................... 62
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5.
Alnazon Set Reserve Prices to Lilllit Adve1tisers ' Return on Ad Spend .......................... 66
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6.
Alnazon Fmt her Expanded Reserve Pricing Systems After 2021 .................................... 67
D.
Alnazon Continued to Increase Surcharges While It Decreased Adve1t isers' RoAS ...... 70
E.
Alnazon Orchesti·ated Multiple Cover Ups to Conceal Its Surchai·ges ............................. 74
1.
December 2021 CPC Spike Escalations ...................................................................... ..... 7 6
2.
Prime Day 2023 CPC Spike Escalations .......................................................................... 82
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COMPLAINT - iii
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FEDERAL TRADE COMMISSION
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New York, NY 10004
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Customer Escalation in 2024 ............................................................................................ 88
AMAZON DEPRIVES ADVERTISERS OF A COMPETITIVE AUCTION PROCESS .. 91
AMAZON’S CONDUCT RESULTS IN SUBSTANTIAL HARM ........................................ 96
VIOLATIONS OF THE FTC ACT .......................................................................................... 97
VIOLATIONS OF STATE LAW .............................................................................................. 97
CLAIMS BROUGHT BY THE FEDERAL TRADE COMMISSION .................................. 98
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STATE LAW CLAIMS BROUGHT BY THE PLAINTIFF STATES ............................... 101
CONSUMER INJURY ............................................................................................................. 154
PRAYER FOR RELIEF .......................................................................................................... 154
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COMPLAINT - iv
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Plaintiffs, the Federal Trade Commission (“FTC” or “Commission”), and the States of
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Alaska, Arizona, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Commonwealth of Kentucky,
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Louisiana, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode
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Island, South Carolina, Vermont, and Washington, and the People of the State of California, by
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and through their respective Attorneys General, and the Consumer Protection Division of the
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Office of the Maryland Attorney General (together, the “Plaintiff States,” and collectively with
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the FTC, “Plaintiffs”), for their Complaint allege:
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INTRODUCTION
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1. Since 2019, Amazon.com, Inc. (“Amazon”) has secretly and systematically overcharged its
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approximately 1.2 million advertising customers by manipulating the “auctions” that it uses
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to set the price of ads on its platform. Amazon represents, and advertisers believe, that
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competitive auctions set the prices for advertising on its leading e-commerce website. But,
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in reality, Amazon overrides and replaces the actual auction results with higher prices set by
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Amazon to increase its profits. For years, Amazon has secretly inflated the auction prices
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for three of its advertising products: Sponsored Products, Sponsored Brands and Sponsored
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Display. With respect to its largest advertising product, Sponsored Products, Amazon
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significantly inflated prices with an average “surcharge rate” of approximately
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which increased to over
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documents describing its “hidden” “surcharges,” Amazon’s scheme has likely illegally
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extracted over 20 billion dollars from its unwitting advertising customers.
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on peak shopping days. Based on numerous internal
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2. Since launching its advertising auctions in approximately 2012, Amazon has represented to
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customers that its advertising prices are set by “second price” auctions that rank participants
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by a combination of their bid and relevance to shoppers’ searches, and where the winning
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advertiser only pays the minimum amount necessary (e.g., one cent more) to beat the
COMPLAINT - 1
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second-place bidder. However, in 2018, Amazon began secretly manipulating its auction
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results to increase its ad prices. Amazon gave its customers no notice of this change and
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took affirmative steps to conceal it, while continuing to represent that it operated second
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price auctions.
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3. Amazon determined in late 2018 that it was no longer satisfied with the prices resulting
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from its competitive advertising auctions. As a result, Amazon’s advertising organization
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(“Amazon Ads”) decided to set and charge customers higher prices for advertising
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placements itself. After Amazon runs its ad auctions and determines the winning and
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second-place bidders, it then replaces the price determined by the auction with a higher price
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designed to maximize Amazon’s profits and decrease the cost efficiency of its advertisers’
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campaigns. As explained internally by Amazon’s Senior Vice President in charge of
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Amazon Ads, in Amazon’s auctions “the second price isn’t set by an actual bidder, but
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rather by” Amazon in the form of a “proxy 2nd price that we calculate.”
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4. Amazon’s scheme has resulted in substantial overcharges and cost increases paid by its
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approximately 1.2 million U.S. advertising customers, which include over 500,000 small
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and medium-size businesses. A 2022 study conducted by Amazon revealed that
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customers for its most lucrative advertising placements are new or small business owners.
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of its
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5. Amazon’s advertising customers sell millions of products to U.S. consumers, including
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groceries, pharmacy products, clothes, school supplies, and other essentials. Sellers on
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Amazon incur substantial costs in the form of fees and surcharges to participate and
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advertise on Amazon’s leading e-commerce platform. A significant portion of these costs,
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including the advertising costs paid by Amazon sellers, are ultimately passed through to and
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paid by Amazon shoppers in the form of higher prices.
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COMPLAINT - 2
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6. In 2021, using a snapshot of data, Amazon analyzed how its undisclosed surcharges
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a1tificially increased the price of adve1tising of various categories of products (refeITed to as
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"general ledgers" or "GLs") bought by U.S. consumers on its platfonn. The analysis found
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that Amazon levied its highest surcharges on adve1tisements for
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These typically low-margin products are likely to pass on cost increases to consumers.
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Amazon also applied high surcharges to other necessities including
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reflected in an internal cha1t below (emphasis added) .
, as
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7. Internally, Amazon refers to the differences between the actual auction prices and the
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aitificial prices it charges customers as auction "surchai·ges." While many of Amazon's fees
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or surcharges are disclosed to its customers, Amazon does not disclose that its auction
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pricing has "a surcharge hidden in it." In fact, Amazon actively conceals this infonnation
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from its customers to avoid "iITevocable damage to adve1tiser tiust" and a "downward
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COMPLAINT - 3
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spiral” of advertisers lowering their bids or decreasing their advertising spending with
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Amazon.
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8. Amazon takes great pains to actively conceal from customers the fact that it inflates its
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purported auction prices. These efforts include: extensive testing of incremental surcharge
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increases to assess the risk of detection, adding and fine-tuning design features to its pricing
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system to help “mask” the surcharges from customers, and responding to customer
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complaints about suspicious price increases by falsely denying that Amazon played any role
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in raising the prices.
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9. Through its testing process, Amazon has repeatedly confirmed that its advertising customers
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are unable to detect its scheme. As Amazon’s confidence that its advertising customers are
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unaware of its conduct has grown, it has substantially increased its hidden surcharges.
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Amazon has been able to successfully exploit the fact that its “opaque” auction process and
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reporting ensures that advertisers cannot know whether the price they are charged is the
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minimum amount needed to win the auction, as promised, or instead an inflated amount
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fabricated by Amazon. As a result, Amazon has successfully and profitably led advertisers
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to believe — falsely — that they continue to compete in second price auctions.
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10. Amazon has used its unique position as both the auctioneer and seller of the advertising
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placements to distort and subvert the competitive process inherent in auctions. As the head
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of Amazon Ads explained, Amazon does not rely on the competing bids it receives to
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determine its pricing because “doing so can result in the [] loss of economic value” to
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Amazon. Instead, he acknowledged, Amazon has “inserted” a “bid” into its auctions to
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increase prices. According to Amazon, this enables Amazon to “adjust” prices “beyond
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what would be organically achieved through advertiser competition.” As an Amazon Senior
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Scientist similarly explained, to increase its auction prices, Amazon employs “an invented
COMPLAINT - 4
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New York, NY 10004
(212) 607-2829
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auction participant representing how much Amazon thinks that paiiicular ad slot is wo1ih."
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(emphasis added). In executing its scheme to misrepresent and rig its auctions against its
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customers, Amazon has deceived its customers and deprived them of the benefits of
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competition and fair and transparent dealing.
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11. As shown in the chaii below, from approximately 2019 to the present, Amazon has
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increasingly overcharged its customers while representing to them, across multiple
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communications channels, that its pricing is set by second price auctions. •
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• "GSP" or "generalized second price" is the te1m both the advertising industiy and Amazon use to describe its
second price auctions to reflect that it sells multiple placements on the same search page in an auction. Tue
surcharge rate for Sponsored Products search placements was calculated for 2020 to 2024 based on Amazon's
internal data; the surcharge rate for 2019 was estimated based on Amazon's internal documents, which indicate that
Amazon began using surcharges for Sponsored Products search placements in July 2019.
COMPLAINT - 5
FEDERAL TRADE COMMISSION
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New York, NY 10004
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12. The FTC brings this action for Defendant’s violations of Section 5(a) of the FTC Act, 15
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U.S.C. § 45(a). For these violations, the FTC seeks a permanent injunction and other relief
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pursuant to Section 13(b) of the FTC Act, 15 U.S.C. § 53(b).
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13. The Attorneys General bring this action for Defendant’s violations of the below enumerated
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state laws. For these violations, the Attorneys General seek relief, including injunctive
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relief, recission or reformation of contracts, restitution, the refund of monies paid,
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disgorgement of ill-gotten gains, civil penalties, attorneys’ fees, expenses, and costs.
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JURISDICTION AND VENUE
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14. This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331, 1337(a), and 1345.
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15. Venue is proper in this District under 28 U.S.C. § 1391(b)(1), (b)(2), (c)(2), and (d), and 15
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U.S.C. § 53(b).
PLAINTIFFS
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16. The FTC is an agency of the United States Government created by the FTC Act, which
authorizes the FTC to commence this district court civil action by its own attorneys. 15
U.S.C. §§ 41–58. The FTC enforces Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which
prohibits unfair or deceptive acts or practices in or affecting commerce.
17. Plaintiff State of Alaska, through its Acting Attorney General Cori Mills, brings this action
under her authority in AS § 45.50.501(a) to enforce the Alaska Unfair Trade Practices Act,
AS §§ 45.50.471– 561. Under AS § 45.50.471(a) of that Act, unfair methods of competition
and unfair or deceptive acts or practices in the conduct of trade or commerce are declared to
be unlawful.
18. The Arizona Attorney General is authorized to bring an action under the Arizona Consumer
Fraud Act (the “Arizona CFA”), A.R.S. §§ 44-1521 to -1534, pursuant to her authority
under A.R.S. §§ 41-193(A)(3) and 44-1528. The Arizona CFA prohibits the act, use or
COMPLAINT - 6
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New York, NY 10004
(212) 607-2829
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employment of any deception, deceptive or unfair act or practice, fraud, false pretense, false
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promise, misrepresentation, or concealment, suppression or omission of any material fact
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with intent that others rely on such concealment, suppression or omission, in connection
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with the sale or advertisement of any merchandise whether or not any person has in fact
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been misled, deceived or damaged. A.R.S. § 44-1522.
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19. Plaintiff the People of the State of California bring this action by and through Attorney
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General Rob Bonta, who is authorized by California Business and Professions Code
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§§ 17535 and 17536 to enforce the California False Advertising Law, California Business
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and Professions Code § 17500 et seq., and authorized by California Business and
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Professions Code §§ 17203, 17204, and 17206 to enforce the California Unfair Competition
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Law, California Business and Professions Code § 17200 et seq. Among other relief,
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California Business and Professions Code §§ 17203 and 17535 authorize the Attorney
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General to obtain injunctive relief to halt violations of, and enforce compliance with the
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Unfair Competition Law and False Advertising Law, respectively, and also authorize the
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Attorney General to seek all orders or judgments as may be necessary to restore to any
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person in interest any money or other property acquired through violations of the Unfair
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Competition Law and False Advertising Law. The Attorney General is also authorized by
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California Business and Professions Code §§ 17206 and 17536 to obtain civil penalties. The
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Attorney General is also authorized by California Government Code § 12527.6 to obtain
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disgorgement.
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20. The State of Colorado brings this action by and through Attorney General Philip J. Weiser
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pursuant to the Colorado Consumer Protection Act, Colo. Rev. Stats. §§ 6-1-101, et seq.,
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(“CCPA”), which prohibits unfair and deceptive trade practices in the course of a
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defendant’s business, vocation, or occupation. The CCPA authorizes the Colorado Attorney
COMPLAINT - 7
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New York, NY 10004
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General to seek, and the Court to grant, civil penalties, injunctive relief, and such orders as
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may be necessary to prevent the use or employment of deceptive trade practices, to
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completely compensate or restore to the original position of any person injured, or to
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prevent any unjust enrichment. Colo. Rev. Stats. §§ 6-1-110 and 112.
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21. Plaintiff State of Florida brings this action for Defendant’s violations of the Florida
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Deceptive and Unfair Trade Practices Act, Chapter 501, Part II, Florida Statutes. For these
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violations, Florida seeks relief, including injunctive relief, equitable monetary relief,
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consumer restitution, the refund of monies paid, disgorgement of ill-gotten monies, civil
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penalties, attorney’s fees, and other relief pursuant to Sections 501.207(b), 501.207(3), and
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501.2075, Florida Statutes.
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22. James Uthmeier, the Florida Attorney General, is the enforcing authority of the Florida
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Deceptive and Unfair Trade Practices Act pursuant to Section 501.203(2), Florida Statutes,
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is afforded the authority to seek the full range of relief available under Florida Deceptive
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and Unfair Trade Practices Act, and has determined that this enforcement action serves the
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public interest. The Florida Attorney General enforces Section 501.204(1), Florida Statutes,
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which prohibits unfair or deceptive acts or practices in the conduct of any trade or
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commerce.
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23. Raúl R. Labrador is the Attorney General for the State of Idaho and has authority under
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Idaho Code § 48-606 to bring this lawsuit on behalf of the State in its sovereign capacity
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and in the public’s interest against Defendant for violating the Idaho Consumer Protection
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Act, title 48, chapter 6, Idaho Code, and the Idaho Rules of Consumer Protection, IDAPA
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04.02.01.000 et seq.
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24. Plaintiff State of Illinois is one of the fifty sovereign states of the United States. Attorney
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General Kwame Raoul is the duly elected and qualified Attorney General and brings this
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action in his official capacity for and on behalf of the People of the State of Illinois,
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pursuant to the Provisions of the Illinois Consumer Fraud and Deceptive Business Practices
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Act (“Illinois Consumer Fraud Act”), 815 ILCS 505/7, and his common law authority as
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Attorney General to represent the People of the State of Illinois.
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25. The Illinois Attorney General believes this action to be in the public interest of the citizens
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of the State of Illinois and brings this lawsuit pursuant to Section 7(a) of the Illinois
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Consumer Fraud Act, 815 ILCS 505/7(a).
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26. Plaintiff State of Indiana, through Attorney General Todd Rokita, brings this action under
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his authority in Ind. Code § 24-5-0.5-4(c) to enjoin unfair, abusive, or deceptive acts,
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omissions, or practices in connection with a consumer transaction, and obtain other relief
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under Indiana’s Deceptive Consumer Sales Act, Ind. Code § 24-5-0.5, et seq. For these
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violations, Indiana seeks permanent injunctive relief, consumer reimbursement,
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disgorgement, civil penalties, restitution, attorneys’ fees and costs, and other equitable and
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monetary relief.
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27. Plaintiff State of Iowa brings this action for Defendant’s violations of Iowa Code § 714.16,
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the Iowa Consumer Fraud Act. Iowa Code § 714.16(7) authorizes Iowa Attorney General
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Brenna Bird to enforce the Iowa Consumer Fraud Act. For these violations, Iowa seeks
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permanent injunctive relief, consumer reimbursement, disgorgement of ill-gotten gains, civil
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penalties, and attorneys’ fees and costs.
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28. Plaintiff Commonwealth of Kentucky ex rel. Russell Coleman, Attorney General is
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responsible for the enforcement and administration of Kentucky law, including but not
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limited to the Kentucky Consumer Protection Act, KRS § 367.110 et seq. (hereinafter
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“KCPA”). The Attorney General is authorized to bring this suit under KRS § 367.190. He
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brings this action in the name of the Commonwealth of Kentucky and has determined it to
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be in the public interest to do so.
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29. The Attorney General of the Plaintiff State of Louisiana is authorized to bring this action
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pursuant to the Unfair Trade Practices and Consumer Protection Act, La. Rev. Stat. 51:1401,
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et seq. (“LUTPA”). La. Rev. Stat. 51:1405(A) makes unlawful “unfair and deceptive acts or
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practices in the conduct of any trade or commerce.” The Defendant’s acts as alleged herein
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violate Louisiana’s prohibition on unfair and deceptive acts or practices.
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30. Plaintiff Consumer Protection Division of the Office of the Maryland Attorney General is
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the Maryland agency charged with the enforcement of Maryland’s consumer protection
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laws, including but not limited to, the Maryland Consumer Protection Act, Md. Code Ann.,
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Commercial Law Article §§ 13-101 through 13-501 (“MD CPA”). The Consumer
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Protection Division is authorized to bring this action pursuant to § 13-406 of the Maryland
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Consumer Protection Act for relief that includes an injunction and disgorgement of
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restitution pursuant to § 13-406(c) of the Act, costs pursuant to § 13-409 of the Act, and
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penalties of up to $10,000 per violation under § 13-410 of the Act.
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31. Plaintiff State of Nebraska is a sovereign state. Michael T. Hilgers, as Attorney General of
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the State of Nebraska, is expressly authorized to bring this action under Nebraska’s Uniform
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Deceptive Trade Practices Act on behalf of the State of Nebraska to protect the state and its
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residents from Defendant’s unlawful business practices. Neb. Rev. Stat. §§ 87-303.05(1),
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303.11(1).
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32. Plaintiffs Jennifer Davenport, Attorney General of the State of New Jersey, Christopher L.
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Peterson, Acting Director of the New Jersey Division of Consumer Affairs (collectively, the
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“State of New Jersey” or “New Jersey”) bring this action to enforce the New Jersey
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Consumer Fraud Act, N.J.S.A. §§ 56:8-1 et seq. (“New Jersey CFA”). The State of New
COMPLAINT - 10
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Jersey brings this action pursuant to its authority under the New Jersey CFA, N.J.S.A.
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§§ 56:8-8, 56:8-11, 56:8-13, and 56:8-19, to permanently enjoin Defendant from engaging
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in unconscionable commercial practices, acts of deception, misrepresentations, false
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promises, concealments, and/or knowing omissions of material fact, in violation of N.J.S.A.
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§ 56:8-2, and to recover statutory civil penalties, restitution, attorneys’ fees and costs and
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other equitable and monetary relief.
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33. Plaintiff the People of the State of New York, by their attorney Letitia James, Attorney
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General of the State of New York (“NYAG”), brings this action pursuant to New York
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Executive Law § 63(12), which authorizes the NYAG to seek injunctive and other relief to
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enjoin repeated and persistent fraud or illegality in the carrying on, conducting or
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transaction of business, and New York General Business Law §§ 349 and 350, which
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authorize the NYAG to seek injunctive relief, restitution, damages, costs, civil penalties, and
13
other equitable relief, including disgorgement, when a person or business engages in false,
14
deceptive, abusive, or unfair acts and practices, or false advertising, in the conduct of any
15
business, trade, or commerce. In accordance with New York General Business Law
16
§ 349(c), the NYAG provided pre-litigation notice to Amazon.
17
34. The North Carolina Attorney General is charged with, inter alia, enforcing North Carolina’s
18
Unfair or Deceptive Trade Practices Act, N.C. Gen. Stat. §§ 75-1.1 et seq., which prohibits
19
unfair and deceptive conduct by businesses operating in North Carolina. North Carolina’s
20
Unfair or Deceptive Trade Practices Act authorizes the State of North Carolina to seek
21
injunctive relief, rescission or reformation of contracts, restitution, the refund of monies
22
paid, disgorgement of ill-gotten monies, civil penalties, attorneys’ fees, expenses, costs, and
23
other equitable relief for Defendant’s acts or practices in violation of N.C. Gen. Stat. § 75-
24
1.1.
COMPLAINT - 11
Case No. __:___-cv-______
FEDERAL TRADE COMMISSION
One Bowling Green, Suite 318
New York, NY 10004
(212) 607-2829
Case 2:26-cv-03097
1
Document 1
Filed 08/31/26
Page 16 of 181
35. Plaintiff State of Oklahoma, Office of the Oklahoma Attorney General, by Attorney
2
General Gentner Drummond is the chief legal officer of the State of Oklahoma and brings
3
this action in the name and on behalf of the people of the State of Oklahoma to protect the
4
state, its general economy, and its residents from Amazon’s unlawful business practices. 74
5
O.S. § 18b(A). The Attorney General has authority under the Oklahoma Consumer
6
Protection Act, 15 O.S. 751 et seq., to bring this action and seek injunctive relief, civil
7
penalties, disgorgement, restitution, and other equitable relief, as well as attorneys’ fees,
8
expenses, and costs.
9
36. Plaintiff Commonwealth of Pennsylvania, Office of Attorney General, by Attorney General
10
David W. Sunday Jr. (“PA-OAG” or the “Pennsylvania Attorney General”) is the chief legal
11
officer of the Commonwealth of Pennsylvania. 71 P.S. § 732-206(a). Pursuant to the
12
Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1, et
13
seq. (“PA Consumer Protection Law”), the Pennsylvania Attorney General is authorized to
14
obtain injunctive relief, civil penalties, restitution, costs, and other equitable relief whenever
15
he has reason to believe a person is using or is about to use any method, act or practice
16
declared to be unlawful under section 201-3 of the act and that the proceedings would be in
17
the public interest. 73 P.S. § 201-4; § 201-4.1; § 201-8(b). Section 3 of the PA Consumer
18
Protection Law declares as unlawful unfair methods of competition or unfair or deceptive
19
acts or practices in the conduct of any trade or commerce as defined by subclauses (i)
20
through (xxi) of Section 201-2(4) of the PA Consumer Protection Law. 73 P.S. § 201-3.
21
37. Plaintiff Rhode Island Office of the Attorney General (“Rhode Island”) is the chief legal
22
officer for the State of Rhode Island. Pursuant to the Rhode Island Deceptive Trade
23
Practices Act, R.I. General Laws §§ 6-13.1–1 et seq., Rhode Island seeks relief, including
24
COMPLAINT - 12
Case No. __:___-cv-______
FEDERAL TRADE COMMISSION
One Bowling Green, Suite 318
New York, NY 10004
(212) 607-2829
Case 2:26-cv-03097
Document 1
Filed 08/31/26
Page 17 of 181
1
injunctive relief, civil penalties, restitution, disgorgement, attorneys’ fees and costs, and
2
other relief available under the Rhode Island Deceptive Trade Practices Act.
3
38. Plaintiff State of South Carolina brings this action, by and through its Attorney General,
4
Alan Wilson, in its sovereign capacity in order to protect the interests of the State and its
5
citizens. The Attorney General brings this action pursuant to his parens patriae,
6
constitutional, statutory, and common law authority, including the authority granted to him
7
by the South Carolina Unfair Trade Practices Act, S.C. Code Ann. §§ 39-5-20, 50, and 110.
8
39. Plaintiff State of Vermont, through its Attorney General Charity R. Clark, brings this action
9
under 9 Vt. Stat. Ann. § 2458 to enforce the Vermont Consumer Protection Act.
10
Defendant’s actions violate § 2453, which prohibits unfair methods of competition and
11
unfair or deceptive acts or practices in commerce. Vermont seeks all remedies available
12
under § 2458, including civil penalties, injunctive and other equitable relief, including
13
disgorgement, fees and costs, and such other relief as the Court deems just and equitable.
14
40. Plaintiff Washington State Attorney General’s Office, Consumer Protection Division
15
(“Washington”) brings this action for Defendant’s violations of the Washington Consumer
16
Protection Act (WA CPA), Wash. Rev. Code § 19.86. For these violations, Washington
17
seeks relief, including injunctive relief, civil penalties, restitution, disgorgement, attorneys’
18
fees and costs, and/or other relief, pursuant to the WA CPA, Wash. Rev. Code §§ 19.86.080
19
and 19.86.140.
DEFENDANT
20
21
41. Defendant Amazon is a Delaware corporation with its principal place of business at 410
22
Terry Avenue North, Seattle, Washington 98109. Amazon transacts and has transacted
23
business in this District and throughout the United States.
24
COMPLAINT - 13
Case No. __:___-cv-______
FEDERAL TRADE COMMISSION
One Bowling Green, Suite 318
New York, NY 10004
(212) 607-2829
Case 2:26-cv-03097
Document 1
Filed 08/31/26
Page 18 of 181
1
COMMERCE
2
42. At all times relevant to this Complaint, Defendant has maintained a substantial course of
3
trade in or affecting commerce, as “commerce” is defined in Section 4 of the FTC Act, 15
4
U.S.C. § 44.
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
OVERVIEW OF AMAZON’S ADVERTISING AUCTIONS
43. Amazon is one of the world’s largest digital advertising companies. In addition to operating
the world’s largest e-commerce platform, Amazon generates more than 68 billion dollars of
annual advertising revenue, primarily by selling advertising space on its e-commerce
website and app (“Amazon.com”).
44. Amazon sells advertising placements that appear on Amazon.com through online auctions.
These “Sponsored Ads” consist of three types of advertisements — Sponsored Products,
Sponsored Brands, and Display Ads — each relating to different advertising placements
shown alongside search results whenever a consumer searches for a product on
Amazon.com using a keyword or keywords. Amazon typically charges advertisers who win
the auction each time a shopper clicks on their advertisement, and the price charged to the
advertiser for each click is called the cost-per-click or “CPC.” Sponsored Products is by far
the most lucrative product, accounting for more than
annual revenue, and over
-
-
of Amazon’s Sponsored Ads
in the 2024 fiscal year.
45. Since at least 2012 and through 2026 (nearly two years after Amazon learned of the FTC’s
investigation in 2024), Amazon has represented to advertisers and advertising agencies on
its website, in its marketing and training materials, online training portals, YouTube
channel, and in direct presentations given by Amazon’s account representatives, that it
operates “second price” auctions. These materials represent that ads are ranked “based on
the combination of bid and the ad’s relevance to shopping queries,” and that Amazon
COMPLAINT - 14
Case No. __:___-cv-______
FEDERAL TRADE COMMISSION
One Bowling Green, Suite 318
New York, NY 10004
(212) 607-2829
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Document 1
Filed 08/31/26
Page 19 of 181
1
charges the winning bidders “the minimum required to beat the ad with the next highest
2
ranked score in the auction.” Amazon represents it runs a second price auction using a basic
3
and commonly used example in its materials where the winner pays a price “slightly higher
4
than the second highest CPC [cost-per-click] bid” or “one penny more than the next highest
5
bid.” The core message Amazon conveys to its customers is the winner pays an amount
6
based on its competitor’s bid and not its own bid, as is done in a “first price” auction and
7
that prices are set by a competitive bidding process (not by Amazon).
8
46. Amazon adopted the GSP auction model because it has been the “industry standard” in
9
search advertising since the early 2000s. As the advertising industry widely understands,
10
GSP auctions are sealed-bid auctions that rank bids by both their price and relevance to the
11
shopper’s query and then charge winning bidders the minimum amount necessary to beat
12
the next-highest ranked bidder.
13
47. Amazon’s statements that it operates second price auctions have been widely repeated
14
publicly in news articles and on the websites of companies that assist and represent
15
businesses and individuals advertising on the Amazon website, including agencies that
16
Amazon itself promotes to advertisers.
17
48. Contrary to Amazon’s representations and advertising customer expectations, in late 2018
18
and early 2019, Amazon began secretly overriding the CPCs set by the second price auction
19
results and instead charged its customers higher prices set by Amazon after the auctions
20
finished. Amazon executives approved this course of action even in the face of their
21
subordinates’ “concern about advertiser pricing expectations” given that “we currently tell
22
advertisers that we run a second price auction.” Amazon executives and auction managers
23
were aware that Amazon continued to tell advertisers that Amazon operates second price
24
auctions and that these representations were no longer true.
COMPLAINT - 15
Case No. __:___-cv-______
FEDERAL TRADE COMMISSION
One Bowling Green, Suite 318
New York, NY 10004
(212) 607-2829
Case 2:26-cv-03097
Document 1
Filed 08/31/26
Page 20 of 181
1
49. Internally, Amazon executives referred to the process Amazon uses to set artificially higher
2
prices as a “soft reserve” pricing system. The term “reserve price” is commonly used in
3
auctions to mean the lowest offer that a seller will accept — in other words, the minimum
4
price set by the seller in advance of the auction running that a buyer has to bid in order to
5
compete in the auction. But Amazon’s “soft reserve” prices work differently. They are not
6
a minimum amount that an advertiser has to bid to compete in Amazon’s ad auction.
7
Instead, after Amazon runs the auction, it secretly replaces the GSP auction price with a
8
higher “soft reserve” price. Amazon’s Sponsored Products team members internally
9
referred to its “reserve pricing” as “post-hoc pricing adjustments,” which have “an element
10
of unfairness” since “[a]dvertisers may not be expecting” them.
11
50. Internal Amazon documents describe how Amazon calculates CPCs “in two stages.” First,
12
Amazon runs a GSP auction to determine the winning bid and calculate the price resulting
13
from the auction, the “GSP CPC.” Amazon then “transforms the GSP CPC to the final
14
CPC” by calculating a “soft reserve” price that can secretly raise prices by as much as
15
on ordinary days, and by as much as
16
Black Friday.
-
-
on special shopping days like Prime Day or
17
51. To facilitate its scheme, Amazon controls and limits the auction data available to customers.
18
Amazon internally has referred to its aggregated price reporting as “opaque.” As a result,
19
Amazon’s customers are unable to verify auction results and how prices are set and
20
therefore have no way to know whether the price they are charged is the minimum amount
21
needed to beat the second-place bid or instead an inflated amount set by Amazon.
22
52. Amazon is aware that long after it started to secretly inflate prices, its customers continue to
23
believe that Amazon’s prices are set by second price auctions (as Amazon continues to
24
represent) and bid accordingly. For example:
COMPLAINT - 16
Case No. __:___-cv-______
FEDERAL TRADE COMMISSION
One Bowling Green, Suite 318
New York, NY 10004
(212) 607-2829
Case 2:26-cv-03097
1
In a 2023 internal document, Sponsored Products team members wrote: “Many
advertisers set a relatively high bid i.e. $100 or $1000 because they trust
Amazon is not running a first price auction; and advertisers choose smart
bidding, especial [sic] Up & Down, because they believe Amazon will not simply
charge their first price. This should be obvious, just to make sure everyone is on
the same page.” In an accompanying chat, a team member elaborated: “[M]any
advertisers set a default high bid because they trust our Generalized Second
Price Auction process.” (emphasis added)
In 2024, the Sponsored Products manager overseeing auction pricing wrote
internally that “many advertisers bid far higher than what they are willing to
pay…[b]ecause they assume its GSP [a generalized second price auction].”
(emphasis added)
In 2024, a Sponsored Products team member who had helped conduct a largescale pricing experiment that concluded that Amazon could increase surcharges
without fear of detection by advertisers wrote internally: “We don’t tell them
about the surcharge, we let them assume GSP-based.” (emphasis added)
In 2024, a core member of the Sponsored Products team wrote that “only GSP
logic is known publically [sic]” and that even “the mention of” Amazon Ads
“tuning pricing controls is new information that is not available publically [sic].”
(emphasis added)
5
6
8
9
10
11
12
13
14
15
Page 21 of 181
In 2021, Amazon’s Sponsored Products auction team acknowledged that ad
agencies whose services Amazon promotes to its advertisers “are operating
under the assumption that Amazon uses a GSP auction.” (emphasis added)
4
7
Filed 08/31/26
2
3
Document 1
53. Internal Amazon documents noted that, if its artificial auction price increases were
16
discovered, Amazon would risk facing severe consequences from advertisers in response.
17
For example, in 2022, the Vice President of Sponsored Products expressed concerns that if a
18
paper authored by Amazon employees that described a method for estimating advertisers’
19
willingness to pay for ad slots were published, it might “lead others to infer we are using
20
soft floor prices which if true, will lead to bid shading and other dynamic bidding
21
responses.” Similarly, in 2023, an economist in Amazon Ads acknowledged internally that
22
“[i]f we say (or advertisers think) we are running a second price auction, but we aren’t and
23
what we are doing charges the advertisers more,” then “that’s a reputational risk when it
24
COMPLAINT - 17
Case No. __:___-cv-______
FEDERAL TRADE COMMISSION
One Bowling Green, Suite 318
New York, NY 10004
(212) 607-2829
Case 2:26-cv-03097
Document 1
Filed 08/31/26
Page 22 of 181
1
eventually becomes clear.” He added that advertisers would start bidding lower amounts if
2
they learned that they were not actually bidding in a second price auction.
3
54. Amazon therefore sought to conceal its escalating level of undisclosed surcharges to ensure
4
its advertising customers continued to believe that prices were still being set by second price
5
auctions — and not by Amazon. As an Amazon manager in charge of Sponsored Products
6
auctions explained in 2023: “All of our proposals are about how we can tune parameters to
7
increase prices and move away from a GSP while hoping that advertisers don’t notice and
8
decrease bids or ad spend.”
9
55. Accordingly, Amazon kept its use of “soft reserve” prices a closely guarded secret, even
10
from its own sales and marketing employees in charge of interacting with advertisers. And
11
Amazon designed the soft reserve pricing system so its existence would be imperceptible to
12
advertisers. An internal Sponsored Brands memorandum noted “one of the characteristics
13
of a ‘good’ reserve price is that it simulates a ‘natural’” second price bid.
14
56. Amazon has used several different reserve pricing mechanisms to set prices above its
15
second price auction results without being detected. In 2019, the Sponsored Products
16
auction team was “extremely cautious” when it began inserting surcharges into its pricing
17
and initially limited the percentage of auctions where it artificially raised prices up to the
18
amount of the winning bid to just ■ Amazon refers to this percentage as the “First Price”
19
or “FP” rate. Similarly, the Sponsored Brands auction team initiated a secret reserve pricing
20
experiment in 2019 using a “slow rollout schedule” to avoid “a rapid increase in price” that
21
could “raise concerns among advertisers about the fairness of the auction.”
22
57. After conducting experiments in 2019 and 2020 to test advertisers’ reactions to larger
23
hidden surcharges, Amazon confirmed that advertisers were unable to detect the surcharges
24
or determine whether they were charged their own bid, in part because of Amazon’s opaque
COMPLAINT - 18
Case No. __:___-cv-______
FEDERAL TRADE COMMISSION
One Bowling Green, Suite 318
New York, NY 10004
(212) 607-2829
Case 2:26-cv-03097
Document 1
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1
and aggregated price reporting. Amazon recognized internally that its reporting does not
2
enable advertisers to “see performance results (CPC, original bids, etc.) at the per ‘click’
3
level” and so advertisers do not have “visibility into the behavior of individual auctions.”
4
For example, Amazon’s invoices are not itemized by click or other charge, presenting only
5
averages that combine multiple keyword auctions across multiple types of advertising
6
placements.
7
58. As a result, the Sponsored Products auction team understood that the surcharges remained
8
hidden from advertisers. A Sponsored Products team member wrote in 2022 in an internal
9
team chat that “advertisers don’t see the surcharge over GSP.” He further explained that
10
advertisers would attribute pricing increases resulting from surcharges to competition,
11
adding: “[T]here is a general understanding that CPCs are determined by competition. This
12
also helps with external communication.”
13
59. In 2021, Amazon’s Sponsored Products team tested a new pricing mechanism that uses
14
Amazon’s estimate of the ordered product sales (or “eOPS”) that will be generated by a
15
click on the winning bidder’s ad to set higher CPC prices. Within Amazon this is known as
16
“eOPS Based Pricing,” and is the primary pricing method Amazon uses to set surcharges for
17
Sponsored Products ads. Starting in 2022, Amazon began using its eOPS Based Pricing
18
system to set hidden soft reserve prices for almost all Sponsored Products ads on the
19
Amazon search page.
20
60. This eOPS Based Pricing system sets surcharges
21
“Return on Advertising Spend,” or “RoAS” is the amount of money in
22
sales an ad generates divided by the cost of the ad. RoAS is the leading measure of the cost-
23
efficiency of advertisements used by advertisers. Amazon employees wrote in an internal
24
memo in 2021 that “for many advertisers, [RoAS] is the most important metric that
COMPLAINT - 19
Case No. __:___-cv-______
FEDERAL TRADE COMMISSION
One Bowling Green, Suite 318
New York, NY 10004
(212) 607-2829
Case 2:26-cv-03097
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1
advertisers look at when they evaluate the perfonnance of their campaigns. In fact, many
2
adve1tisers use ROAS to decide how to allocate their budget across Amazon's different ad
3
programs." RoAS is measured in dollar amounts such that a RoAS of 4.00 means that for
4
each dollar spent on the ad, the advertiser generated $4.00 of sales revenue. In general, a
5
higher RoAS benefits the adve1t iser, while a lower RoAS benefits the ad seller (i.e.,
6
Amazon). Amazon strategically sets its hidden surcharges to tiy and attain a consistently
7
lower market-wide RoAS for the United States than its actual auction prices provide to
8
advertisers.
9
61. An internal Sponsored Products memorandlllll noted in 2024 that Amazon can conh'ol■
by using secret reserve pricing levers. It displayed the
graph below where
11
are on the x and y axes to show that Amazon can generate
12
more revenue by using secret reserves to
13
14
15
16
17
18
19
20
21
22
23
62.
24
COMPLAINT - 20
Case No. - :- -cv-- -
FEDERAL TRADE COMMISSION
One Bowling Green, Suite 318
New York, NY 10004
(212) 607-2829
Case 2:26-cv-03097
Document 1
Filed 08/31/26
Page 25 of 181
1
2
-
Stated differently, Amazon is
3
seeking to use surcharges to capture more than
4
U.S. tied to Sponsored Products ad placements. These inflated advertising charges allow
5
Amazon to extract additional revenue from sellers on its platform, on top of the account
6
fees, referral fees, and fulfillment and storage fees that increasingly both cut into Amazon
7
sellers’ profit margins and lead to price increases borne by Amazon shoppers.
8
9
of its customers’ sales revenues in the
63. While the eOPS system generates soft reserve prices for each auction, these amounts are
modified further to ensure they do not exceed the winning bid
to reduce the
10
11
risk that advertisers detect and react negatively to the price increases.
12
64. As the head of Sponsored Products auctions explained in 2021 to the Vice President of
13
Sponsored Products, the surcharge constraint allows Amazon to track “how much we’ve
14
moved away from an auction mechanism.”
15
65. After the launch of eOPS Based Pricing, the percentage of clicks on Sponsored Products ads
16
that Amazon priced at the winning bid (the “first-price rate”) increased to between 30% and
17
40% in 2021, and then to 70% in 2022. Amazon continued conducting pricing experiments
18
on advertisers without their knowledge to test how much higher it could raise surcharges
19
and reduce RoAS without detection. This notably included a large-scale pricing experiment
20
in 2023 that raised surcharge limits from
22
-
23
implemented the price increase across its United States customer base.
21
in the United States. Amazon determined that advertisers subjected to this
experiment did not react by reducing their bids or their advertising budgets, and as a result it
24
COMPLAINT - 21
Case No. __:___-cv-______
FEDERAL TRADE COMMISSION
One Bowling Green, Suite 318
New York, NY 10004
(212) 607-2829
Case 2:26-cv-03097
1
Document 1
Filed 08/31/26
66. Amazon currently allows customers to be overcharged by up to
Page 26 of 181
-
above the second price
2
auction result on normal shopping days (capped by the amount of the winning bid).
3
67. In addition to its pricing experiments, Amazon also conducted surveys and interviewed
4
advertisers to discern their internal bidding strategies and surreptitiously help it determine
5
when to increase surcharges and at what level. In an internal 2022 chat, a Sponsored
6
Products auction team member noted: “we can ask advertisers in interviews to see if/how
7
much they pay attention to FP [first price] rate (subtly, without tipping them off).”
8
68. While Amazon’s undisclosed surcharges increase advertising prices year-round, they have
9
an outsized impact on advertising pricing during peak shopping days. For example, during
10
the Christmas holiday season and other peak shopping events (referred to as “high velocity
11
events” or “HVEs”), Amazon often raises its maximum surcharge levels by
12
allowing surcharges to potentially more than
13
-
the GSP auction price.
-
—
69. Amazon began increasing the surcharge levels after it determined that, in its view,
14
advertisers were not sufficiently raising their bids and were therefore benefitting from a
15
higher RoAS during these peak shopping days. Amazon estimated that advertisers would
16
(or should) be content with the lower RoAS associated with normal shopping days and that
17
Amazon was entitled to capture the same percentage
18
attributed sales during peak shopping days that they targeted during normal shopping days.
19
To accomplish this scheme, Amazon deliberately calibrated its surcharges during peak
20
shopping periods to drive down advertisers’ RoAS to match the advertisers’ lower RoAS
21
during normal shopping days.
22
-
of its advertisers’ ad
70. Amazon believed that the increased shopping activity during these periods would
23
“obfuscate” the resulting price increases so that advertisers would not suspect a change in
24
the auction process. A Sponsored Brands employee confirmed that a reserve price
COMPLAINT - 22
Case No. __:___-cv-______
FEDERAL TRADE COMMISSION
One Bowling Green, Suite 318
New York, NY 10004
(212) 607-2829
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Document 1
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1
experiment in 2018, designed to assess the impact of pricing changes on advertiser behavior,
2
illustrated that “our price increases were masked by holiday increases in advertiser
3
demand.” The head of Sponsored Products auctions later explained internally the “main
4
thinking” when they “ramped up” surcharges during Prime Day in 2023 was that advertisers
5
would falsely believe the price increases were caused by advertiser competition:
6
“Advertisers may expect other advertisers to be increasing bids in preparation for PD [Prime
7
Day], so the CPC increases may not be unexpected.” He added that “we relax surcharge
8
constraints” to inflate prices more “when there are enough confounders (e.g.,
9
seasonality) that make it difficult to detect bid shading opportunities.” (emphasis
10
added).
11
71. Amazon refined its surcharge tactics over time. For example, during the early December
12
holiday shopping period in 2021, Amazon’s secret holiday pricing efforts resulted in price
13
increases that were so sudden and large that Amazon’s efforts to conceal its conduct nearly
14
failed. During what Amazon described internally as the “CPC Spike” incident, Amazon
15
received nearly two dozen complaints, including from some of its largest customers and
16
advertising agencies. Amazon assembled a damage control team which included its auction
17
team members, who knew it was their surcharge increases that caused the price spike.
18
However, instead of disclosing its conduct to the complaining advertisers, Amazon sent
19
emails to complaining customers containing a false explanation vetted by Amazon’s public
20
relations and legal departments attributing the cause of the “CPC spike” to higher advertiser
21
and shopper demand.
22
72. Instead of being transparent with its customers and disclosing its surcharge practices,
23
Amazon determined that it should try to mask future surcharge increases by gradually
24
implementing them in advance of peak shopping days. In 2022, Amazon successfully tested
COMPLAINT - 23
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FEDERAL TRADE COMMISSION
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New York, NY 10004
(212) 607-2829
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1
this concealment strategy with its auction team, touting that it had “prevented advertisers
2
from seeing confusing steep increases in their CPCs” resulting in “no advertiser
3
escalations” or significant complaints.
4
73. In 2023, Amazon again received complaints from several of its large customers after its
5
hidden surcharges more than doubled CPCs during Prime Day 2023. Amazon chose again to
6
cover up its conduct and repeated its false explanations that the CPC increases were caused
7
by higher shopper activity. It also put in place “surcharge alarms” and caps to prevent what
8
it described as “egregious CPC increases during HVEs” from recurring.
9
74. Currently, Amazon continues to phase in surcharge increases more gradually to avoid
10
advertisers and ad agencies observing the sudden price changes that led to the complaints in
11
2021 and 2023 and has developed standard “scripts” for “escalated advertisers” raising
12
questions about increased CPCs.
13
75. Amazon has also successfully concealed surcharge increases on normal shopping days. In
14
2024, Amazon permanently raised its secret surcharges for the whole Sponsored Products
15
marketplace, and overcharged advertising customers by about
16
search ad placements, generating about
-
-
for Sponsored Products
in additional revenue from advertisers.
17
76. This surcharge increase also resulted in Amazon charging Sponsored Products advertisers
18
their own winning bid close to 80% of the time. Thus, for the vast majority of its auctions,
19
Amazon effectively and secretly converted its nominally “second price” Sponsored Products
20
auctions into first price auctions.
21
77. Similarly, Amazon’s surcharges in Sponsored Brands auctions extracted a hidden
-
22
surcharge on average from its Sponsored Brands customers in 2024. For these advertising
23
placements, Amazon secretly sets the prices for 70% of ad clicks, and charges winning
24
bidders the amount of their bid 50% of the time.
COMPLAINT - 24
Case No. __:___-cv-______
FEDERAL TRADE COMMISSION
One Bowling Green, Suite 318
New York, NY 10004
(212) 607-2829
Case 2:26-cv-03097
1
2
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78. In January 2025, Amazon engineers and applied scientists estimated that advertisers would
save at least
in 2025, and increase their RoAS from
4
-
5
includes soft reserves.” They added that even these estimates “likely understate” the total
6
advertiser savings because they did not account for a likely decrease in all bids in an auction
7
as all advertisers sought to shade their bids, which “would also decrease the GSP CPCs for
8
many clicks.”
3
9
if they engaged in “perfect” bid shading and paid the prices actually determined by
the second ranked bidder (the “GSP CPC”) instead of Amazon’s inflated price “which
79. Multiple Amazon employees with knowledge of its use of hidden soft reserves expressed
10
their concerns within Amazon that the practice was not consistent with Amazon’s
11
representations to advertisers or advertisers’ understanding of how Amazon’s auctions
12
functioned. Amazon employees said expressly that Amazon was not “doing the right thing”
13
and was “playing with the auction rules” to increase Amazon’s revenue at the expense of
14
advertisers.
15
80. For example, an internal memo on auction economics written by Amazon employees in
16
2023 recognized that Amazon’s use of undisclosed reserve prices in its purported GSP
17
auctions was not “doing the right thing for the advertisers.” The memo further argued that
18
“[a] lot of changes that we have introduced in recent years for closing the gap between the
19
auction clearing price and the highest bid in the auction are not right from an economics
20
perspective,” and that because Amazon was “playing with the auction rules” by
21
“introducing soft floors” — i.e. soft reserve prices — the “customer-obsessed thing to do is
22
to shade the bids on behalf of the advertisers; but we never do that for our onsite inventory.”
23
The memo acknowledged that Amazon’s use of undisclosed reserve prices “increases our
24
short-term revenue,” but predicted that it would “hurt us in the long run.”
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81. Amazon’s long and sustained efforts to deceive its customers about its auction pricing have
2
resulted in billions of rigged auctions. As a result, Amazon has been able to successfully
3
impose hidden surcharges on advertisers almost every time a shopper clicks on an
4
advertisement on the Amazon website. Amazon’s deception continues to this day.
BACKGROUND
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
A. Search Advertising Auctions
1. Types of Auctions
82. Sellers who are uncertain how much to charge for their products use auctions to set prices
through competition. Indeed, auctions are a pure representation of competition. The most
common type of auction is the “first price” auction, where the highest bidder wins the
auction by outbidding rival bidders and pays the value of that bid. “Second price” auctions
occur when the highest bidder wins the auction but pays a price equal to the second-place
bidder (or the minimum amount needed to exceed the amount of the second bid). Auctions
can be either open auctions, in which the bids are known to the other auction participants, or
“sealed bid” auctions where the bids are only shown to the auctioneer. In both first price
and second price auctions, both the winner and the resulting price are a direct function of
competition.
83. In sealed bid first price auctions, the bidders are confronted by the risk that their bid may
greatly exceed the amount needed to win the auction, i.e. their bid will be far above the
second highest bid. Bidders in first price auctions therefore face the risk of overbidding. As
a result, in sequential or repetitive auctions for identical or near-identical goods, winning
bidders will often reduce their bids to test how far above their competition (set by the
second highest bidder) their bid came in and try to reduce their bids to the minimum level
needed to win future auctions. This strategy—called “bid shading”—allows the winning
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bidders to pay less for the auctioned goods and decrease their costs. Bid shading can reduce
2
the prices collected by sellers and decrease their revenue.
3
84. Second price auctions with sealed bids are called “sealed-bid second price auctions” or
4
Vickrey auctions after Dr. William Vickrey, the Nobel-prize winning economist generally
5
credited with their invention. Bidders in such auctions are incentivized to bid their true
6
valuation of the auctioned product (i.e., their willingness to pay) because they will only pay
7
the minimum amount needed to exceed the amount of the second bid. Accordingly,
8
participants do not face a risk of overbidding. Thus, when bidding for the same item again,
9
bidders do not need to shade their bids downward to try to win at a lower price. In other
10
words, a bidder in a sealed-bid second price auction does not have the same incentives to
11
engage in bid shading, because doing so would increase the risk of losing the auction
12
without reducing the price that will be paid if the bidder wins again. As a result, Amazon
13
internally referred to second price auctions as “incentive compatible” since bidders “can
14
achieve the best outcome to themselves just by” bidding their true value.
15
85. The prices set by sealed bid first price auctions are more transparent to winning bidders than
16
their second price counterparts since they do not rely on the auctioneer to inform them of the
17
amount of their own winning bid. By contrast, the winners of sealed second price auctions
18
must rely on the auctioneer to inform them of the value of the second-place bid, and
19
therefore the resulting price owed to the seller, unless other verification procedures are put
20
in place.
21
86. Accordingly, in his article, Counterspeculation, Auctions, and Competitive Sealed Tenders,
22
Journal of Finance, vol 16, no. 1, (1961), Dr. Vickrey acknowledged that sealed-bid second
23
price auctions are vulnerable to fraud. He counseled that measures should be put in place to
24
“prevent the use of a ‘shill’ to jack the price up by putting in a late bid just under the top
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bid” and that “it would be necessary to show the second-best bid to the successful top bidder
2
so that he would be able to assure himself that the price he is being asked to pay is based
3
upon a bona fide bid.” The practice of shill bidding has long been recognized as fraudulent.
4
Dr. Vickrey advised that it “would probably be desirable to have all bids delivered to and
5
certified by a trustworthy holder, who would then deliver all bids simultaneously to the
6
seller.” Under these circumstances, Dr. Vickrey concluded “the seller would have no
7
incentive to do other than sell to the top bidder, showing him as his price the second-best
8
bid.”
9
87. Absent such preventive measures, the seller retains an incentive to secretly unseal the bids,
10
identify the highest offer, and submit a phony bid higher than the second-place bid but
11
slightly lower than the winning bid before the auctioneer announces the winner. That
12
incentive is even stronger when, as is the case here, the seller and auctioneer are one and the
13
same, controlling both the rules and the information needed to exploit the auction.
14
2. Use of Auctions in Digital and Search Advertising
15
88. When platforms use an auction to sell advertising space on their own digital real estate —
16
for example, when Amazon sells ads on Amazon.com — that is referred to as a “closed
17
loop” auction. As the sole “publisher” of the advertising, these “closed loop” platforms
18
typically operate their own proprietary auction systems and require advertisers to use these
19
systems to access their available advertising space inventory. Thus, the digital platform
20
serves as both the auctioneer and the seller of the advertising space to be auctioned. These
21
digital platforms also control and can limit the type and level of auction data and metrics
22
available to advertisers.
23
24
89. Digital advertising placements sold at such closed loop auctions are often displayed on
search results pages which are generated in response to search terms or queries entered into
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search bars or fields by users. Advertisers often pay for the advertising placement on a
2
“CPC” or “cost per click” basis, meaning that the advertiser pays the website or digital
3
platform each time a user clicks on the ad displayed. Some advertising placements are also
4
sold based on how often the ad is seen by a user — typically, these ads are priced on a cost
5
per 1000 impressions basis, also known as cost per mille or “CPM.” Each auction happens
6
in about a tenth of a second in a process known as real-time bidding. The winning bid or
7
bidders get their advertisement displayed on webpages to viewers (each individual view is
8
referred to as an impression) where the ads may be clicked by customers. Hundreds of
9
billions of ad impression opportunities, leading to clicks by customers, are auctioned by
10
digital platforms across the world every day.
11
90. Search advertising has been, and continues to be, largely sold through a form of Vickrey or
12
“sealed-bid second price” auction. These auctions are generalized to reflect the fact that
13
they sell and price multiple placements on the same search pages at the same time.
14
Generalized second price or “GSP” auctions are widely considered the industry standard
15
model used in digital search advertising. GSP auctions used in digital search advertising
16
rank advertisers’ bids based both on the amount of the bid (the proposed CPC) and by the
17
relevancy of the ads to the search terms or query that will generate a search results page on
18
which the winning ad will be displayed. This process is designed to ensure that users see
19
the ads that they are most likely to click on, benefiting both the publisher and the advertiser.
20
Publishers have an incentive to identify and display the ads that are most likely to be clicked
21
by users, because they are paid on a per-click basis. Once advertisers are ranked by bid and
22
relevance, and winners are determined, each advertiser’s price is set at the minimum amount
23
necessary to beat the next best advertiser and retain the slot — in other words, an amount
24
just slightly higher than the bid of the next-highest-ranked advertiser.
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91. Such GSP auctions have been the industry standard for decades and are widely understood
2
in the advertising industry. As discussed further below, when launching its search
3
advertising auctions, Amazon adopted the industry standard GSP auction model.
4
92. Advertisers develop their bidding strategies based on the type of auction model employed
5
by the seller or exchange, which is a fact Amazon knows well as both an ad seller and ad
6
buyer. For example, after one of the largest advertising exchanges announced that it was
7
moving from a second price auction (GSP) to a first price auction, Amazon, a frequent
8
bidder (i.e., advertising buyer) in these auctions, immediately adopted an aggressive strategy
9
to shade its bids for advertising space.
10
93. Amazon also operates a separate business, called Amazon Demand Side Platform (DSP),
11
which offers services and advice to advertisers who want to place ads in locations other than
12
Amazon.com through third-party advertising auctions. With regard to those auctions,
13
Amazon expressly advises advertisers to factor in the “declared auction model” of the
14
advertising auction when devising their bidding strategy. A 2023 internal memo on
15
Sponsored Ads auction economics prepared by Amazon employees explained that if an
16
auction is first-price rather than second-price, or even if it is a second price auction that uses
17
soft reserve prices, then “the right thing to do … is to shade the bids on behalf of the
18
advertisers.”
19
94. In a 2024 article promoting its DSP bid-shading algorithm, Amazon noted “the fundamental
20
difference” between a second price auction and a first price auction “impacts bidding
21
strategies and pricing dynamics, as participants must consider whether to bid their true value
22
or shade their bid to potentially pay less.” Amazon added: “Accurately adjusting bids based
23
on the auction type is a core DSP functionality and plays a major factor in achieving
24
advertiser goal KPIs and managing costs.”
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1
95. In January 2026, a coalition of advertising industry groups issued a report called “Digital
2
Advertising Auction Transparency Standards.” The report emphasized that advertisers’
3
bidding strategies “are devised based on the understood rules of an auction system.”
4
96. As described further below, Amazon publicly represents and leads its customers to believe
5
they are bidding in a genuine generalized second price auction. Fundamentally, Amazon’s
6
representations communicate to advertisers that they are not participating in a first-price
7
auction where they would be charged the amount of their bid, and that prices were set by a
8
competitive bidding process, rather than arbitrarily by Amazon. By maintaining these
9
representations and perpetuating its customers’ misunderstanding, Amazon sought to
10
maximize its profits from its scheme at the expense of its customers.
11
12
97. In reality, Amazon rigs its auctions to extract surcharges, misrepresents its auction model,
and suppresses its advertising customers’ RoAS.
DEFENDANT’S BUSINESS ACTIVITIES
13
14
15
16
17
18
19
20
21
22
23
24
A. Amazon’s “Sponsored Ads” Search Advertising Products
98. Amazon allocates and prices advertising placements sold to advertisers on its website
through real-time auctions lasting milliseconds, which are conducted each time a shopper
enters a search query on its website. Amazon charges an advertiser a CPC each time a
consumer clicks on its ad displayed on the search results or product pages. Amazon also
auctions some advertising placements on a CPM basis where advertisers pay a set price
based on the number of impressions each ad placement receives on a monthly or quarterly
basis.
99. Advertisers bid on keywords that they expect will match Amazon shoppers’ search queries.
When a shopper enters a query, Amazon matches advertisers’ bids to the query and then
ranks the bids by the amount of the bid and a relevance factor based on, among other things,
COMPLAINT - 31
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1
the advertisement’s predicted click-through-rate (CTR) and conversion rate of clicks that
2
will result in sales (CVR). The advertisements are assigned to available slots from top to
3
bottom within the search results in descending ranked score order.
4
100. Amazon’s most profitable advertising program is Sponsored Ads, which is a suite of self-
5
service products used by more than one million advertisers, including small businesses and
6
authors, to set up advertising campaigns and purchase advertising on Amazon’s website
7
through these auctions. Sponsored Ads offers three main self-service products —
8
Sponsored Products, Sponsored Brands, and Display Ads — for different advertisement
9
placements displayed alongside organic results on Amazon’s search results pages and
10
product detail pages (which are webpages shoppers are transferred to when they click on a
11
product appearing in the search results).
12
101. More than
-
of Amazon’s overall advertising revenue — and more than
-
of
13
Amazon’s Sponsored Ads’ revenue — is from Sponsored Products. Sponsored Products
14
runs auctions to allocate advertisement placements in different locations on the search
15
results page — referred to as top of the search page (TOP), middle of the search page
16
(MOP), and bottom of the search page (BOP) — as well as on product detail pages. The
17
auctions are used to sell advertising placements on both mobile devices and desktop
18
computers.
19
102. Sponsored Brands runs auctions to allocate advertisement placements on the top of search
20
results pages and on detail pages. Figure 1 illustrates Sponsored Products and Sponsored
21
Brands advertisement placements at the top of a search results page for a search query for
22
“headphones.” The advertisements are labeled “Sponsored.”
23
24
COMPLAINT - 32
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One Bowling Green, Suite 318
New York, NY 10004
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Figure 1: Sponsored Products and Sponsored Brands Placements
1
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103. Display Ads (or “Sponsored Display” ads) are similar to Sponsored Products and
17
Sponsored Brands ads, but Display Ads appear on certain search results pages and detail
18
pages based on audience targeting instead of keyword searches. Figure 2 illustrates a
19
Display Ads/Sponsored Display advertisement placement on a search results page.
20
21
22
23
24
COMPLAINT - 33
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New York, NY 10004
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Figure 2: Sponsored Display Placement
1
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12
13
14
15
16
17
18
19
20
21
22
23
24
104. Advertisers can set up and manage their Sponsored Ads advertising campaigns through
an “advertising console” that Amazon provides. Amazon also assigns account
representatives to larger advertisers that meet certain annual advertising spending
thresholds.
105. Within the advertising console, advertisers or their advertising agencies or other agents
set budgets for their campaigns and can place bids for their ads to be displayed based on
targeted keywords that match a shopper’s search query entered in the search field on
Amazon’s website.
106. Amazon offers advertisers the option through the advertising console to enable Amazon
to adjust their bids up and down through automatic bidding strategies, using either (1)
“dynamic bidding” where Amazon represents it will adjust bids up to 100% in either
direction for certain placements “based on the likelihood of potential click converting to a
COMPLAINT - 34
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1
sale,” or (2) “rule-based bidding (RBB)” where Amazon represents it will adjust bids up to
2
500% for each ad placement opportunity “based on how likely that opportunity is to result
3
in a sale, working to meet the ROAS [return on ad spend metric] goals” set by the
4
advertiser.
5
107. Automatic bidding strategies can currently adjust advertisers’ bids up to 900% for
6
specific, especially valuable Sponsored Products ad placements, which Amazon represents
7
“can help you be more strategic with where your budget is set.”
8
108. For Amazon sellers, which make up the vast majority of Amazon’s advertising
9
customers, securing placements on a search results page is critical to ensure visibility and
10
drive sales on Amazon. The top of the page in search results is highly valuable advertising
11
space and a leading source of sales revenue for Amazon’s advertising customers. Within its
12
advertising console, Amazon also provides its advertising customers “suggested bid”
13
amounts to win auctions for impressions that can lead to clicks.
14
109. Amazon’s advertising console is designed as a self-service platform offered directly to
15
Amazon sellers, authors, and brands. Amazon has continuously offered its customers
16
instructional materials, videos, and programs on its advertising console to explain how its
17
search advertising auctions function, including how winners are selected and prices set, as
18
well as how customers can access, enter, and input bids into its advertising console in order
19
to participate in the auctions.
20
110. In addition to offering this self-serve approach, Amazon also provides advertisers on its
21
website a list of agencies that are members of Amazon Ads Partner Network
22
(https://advertising.amazon.com/partners/overview), who can manage advertisers’
23
advertising campaigns or provide them with tools to improve their performance. Internally,
24
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Amazon noted its goal was for these “partners [to] becom[e] amplifiers of Amazon Ads
2
messaging and accelerators of product adoption.”
3
111. Amazon represents that the agencies listed on its website as Amazon Ads Partners are
4
“vetted” by Amazon and “have a range of expertise across Amazon Ads products and
5
services, and can help your business achieve your goals in the Amazon store or beyond.”
6
Amazon also displays on its website the number of certifications each advertising agency
7
within its Partner Network received each year for completing Amazon’s online training
8
courses. When advertising agencies submit bids on behalf of advertisers, they act as those
9
advertisers’ agents, a fact that their contracts with Amazon specifically confirm.
10
B. Amazon’s Second Price Auction Representations to Advertisers
11
112. Since at least 2014, Amazon has represented in its Sponsored Ads marketing and training
12
materials on its website, YouTube channel, and online training portals that it operates a
13
“second price” auction where the winning bidder only pays an amount just “slightly higher
14
than” or “one penny more than” the second-place bid (the bid that is ranked second based on
15
both dollar amount and relevance).
16
113. Amazon also has hundreds of account executives in the U.S. who have been trained and
17
encouraged to personally make these same pricing representations to advertisers and
18
agencies in presentations. For example, a 2019 internal evaluation report for account
19
executives contained the following comments to emphasize the second price representations
20
in their oral presentations:
21
22
“Loved your explanation of cpc and second price auctions” [Comments for
“Sponsored Ads Pitch”]
“You explained Second-Price Auction well.” [Comments for “Sponsored Ads
S&D”]
“Make sure to go into the details of CPC model - specifically 2nd price auction for
23
24
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“Watch ‘second-price auction’ explanation and make sure there is clarity with
paying .01 more than second highest.” [Comments for “Sponsored Ads S&D –
Shadow”]
“Overall good call, brought in value prop for sponsored brands and explaining
second price auction” [Comments for “Call Shadow”]
4
5
Filed 08/31/26
client. Explain Win Rate in relation to Relevancy to helping a client to understand
[sic] their chances of winning.” [Comments from “Follow Up call on Condition1 for
a Dive Deep on Sponsored Ads”]
1
3
Document 1
114. Amazon’s second price representations are also understood to be true and repeated by
companies that act as the agents of businesses and individuals with respect to their
advertising on Amazon, including advertising agencies in Amazon’s Partner Network.
1. Amazon’s Representations in Training and Marketing Materials
115. Amazon directs its advertising customers and their advertising agencies to online
materials it posts about its Sponsored Products program on its YouTube channel and in
online training portals. In 2014, Amazon’s “primary” training resources for Sponsored Ads
were available on its YouTube channel, which advised advertisers they “will only be
charged a penny more than the next highest bidder” in its advertising auctions. Amazon has
continuously made this second-price pricing representation with slightly varying examples
in its Sponsored Ads’ online training materials since that time.
116. In 2015, Amazon launched “Seller University” to provide access to online video tutorials
and other “help” content to businesses that sold products on Amazon’s website. Seller
University’s curriculum included training courses on advertising on Amazon, where sellers
learned about Sponsored Ads services, including how to position, bid, and budget their
advertising campaigns.
117. In October 2018, Amazon’s head of marketing and training for advertisers provided the
Senior Vice President of Amazon Ads, the Vice President of Sponsored Products, and other
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senior executives in Amazon’s advertising business “an aggregation of how the auction is
2
represented across various training and marketing materials” for Sponsored Ads. She
3
confirmed that Amazon’s customers were told that “[t]he winner of the auction will pay an
4
amount slightly higher than the second highest CPC bid if their ad is clicked. This is
5
referred to as a second-price auction.”
6
118. In 2020, Amazon launched the “Learning Console,” an online portal to provide training
7
content and certifications to Amazon advertisers, which Amazon rebranded as “Ads
8
Academy” in 2024 (located at https://advertising.amazon.com/academy). At its launch,
9
Amazon described the Ads Academy to advertisers as “your comprehensive learning
10
destination for expanding your advertising expertise, driving business growth, and
11
validating your skills.”
12
119. Advertisers and agencies can become “certified” through the Ads Academy in subjects
13
such as “Sponsored Ads” and “Sponsored Ads Advanced,” by reviewing relevant content on
14
the website and passing a certification assessment. Upon passing the assessment,
15
advertisers and agencies receive a digital badge and a certificate, which Amazon touts as
16
“demonstrat[ing] to your network that you’re a pro at driving results with Amazon Ads.”
17
120. From its launch through 2026, training materials available to advertisers across Amazon’s
18
Ads Academy continued to represent that Amazon runs a second price auction where the
19
prices advertisers pay are set by the amount of the second-place ranked bid, such that the
20
winner only pays an amount necessary to win the auction, or an amount just “slightly higher
21
than” the second-place bid.
22
121. For example, Amazon Ads Academy provides online training courses that are designed
23
for advertisers to “[l]earn the sponsored ads’ fundamentals” and that “cover the essentials of
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sponsored ads.” In these courses, Amazon represents: “Your bid is the maximum amount
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you’re willing to pay if your ad is clicked. If your ad is clicked, you will pay an amount
2
slightly higher than the second highest CPC bid.”
3
122. Amazon Ads Academy also provides a series of webinar training videos which represent:
4
Your cost per click may actually be lower than your bid, because Amazon Ads uses a
second price auction … you will only pay what the advertiser who came in second place
bids plus approximately 1 cent.
5
6
These videos are directed to: (i) advertisers “who haven’t started advertising on Amazon”
7
under the header “Getting started with Amazon Ads and brand building;” and (ii) to self-
8
published Kindle authors under the header titled “Getting started with Amazon Ads for KDP
9
[Kindle Direct Publishers] Authors.” As seen below, the webinar titled “Introduction to bids
10
and budgets,” which is included in the series of videos under both headings, explains “How
11
auctions work” by ranking ads “based on a combination of bid and the ad’s relevance to
12
shopping queries.” It then graphically shows an illustrative auction where the winning bidder
13
(who bids $0.75) based on relevance and bid amount pays only a cost-per-click charge of
14
approximately 61 cents — a price one cent more than the second-place bid.
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How auctions work
2
Auctions d ermine which ds 10 show 10 shoppers based on
th~ ,ombination of bid <11nd th(, ~d's relev,mce to shoppmg
queries.. Ad mu~t me<?t a minimum relevance rnter,a.
3
4
5
.
Auction
6
7
Video camera 4k professional
1. Keywords: camera video 4k
Bid: $0.75
8
2. Keywords: camera video
Bid: $0.60
9
3. Keywords: camera
Bld: $0.45
10
~
1
•
Cost- per-click:
Approx. $0.61
,.
A•AIO'I' \0-.,ftlllllll&\
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123. Amazon posted on Amazon Ads’ YouTube channel similar webinar training videos that
made the same second-price pricing representations. For example, Amazon posted a
webinar video from 2023 through at least 2024 titled “Learn about auctions and the costper-click model,” which states: “Your cost per click may actually be lower than your bid
because Amazon Ads uses a second price auction. This means that the advertiser who bids
with the most relevancy on a keyword wins the auction and has their ad displayed.
However, you only pay what the advertiser who came in second place bids, plus
approximately one cent more.”
124. Amazon’s “Getting Started with Sponsored Ads for KDP Authors,” targeted at selfpublished Kindle authors, has also been available on its YouTube channel since 2020. It
states: “Once your ad is actually clicked, your cost-per-click is going to be approximately 61
cents. This is because we use a second-price auction, so we will charge you one cent more
than the next highest bidder.” As seen below, the webinar graphically shows a similar
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illustrative auction as displayed in the Ads Academy where the winning bidder (who bids
2
$0.75) pays only a cost-per-click charge of approximately 61 cents — a price one cent more
3
than the second-place bid.
4
How auctions work
5
Auctions determine which ads to show to shoppers based on the combination of bid and the ad's relevance
to shopping queries. Ads must meet a minimum relevance criteria.
6
7
Customer search
8
•••
9
I
Best selling war nov Is
Auction
Ad
Keywords· be t selling war novels
Bid: S0.75
Keywords· war novels
Bid: S0.60
10
I
Keywords· novels
Bid 0.45
11
Cost per click:
Approx. $0.61
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125. Amazon repeats the representation that it operates second price auctions in other training
materials for its advertising customers. For example, from at least 2025 to July 2026,
Amazon posted on its website a “developer guide” for Sponsored Brands campaigns — a
resource for advertising customers who want to use “advanced tools” “to programmatically
create and manage campaigns” — that states: “With how the Amazon Ads auction’s [sic]
work, advertisers only pay the least bid amount needed in order to win, so they don’t need to
worry about strategizing about how to set bids.”
126. Amazon also repeated the representation that it used second price auctions on at least four
additional webpages on Amazon’s main website about its advertising products (located at
https://advertising.amazon.com).
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127. From at least 2022 through 2024, the Amazon Ads website home page linked to a
2
webpage titled “Creating Your Brand Foundation on Amazon” (located at
3
https://advertising.amazon.com/library/guides/creating-your-brand-foundation-on-amazon),
4
that stated, as shown below: “Bidding on Amazon Ads is a second price auction. This means
5
that the advertiser who bids with the most relevancy wins the auction and has their ad
6
displayed. However, the advertiser pays the amount of the second-place bid.”
7
8
Auctions
Through auctions, Amazon determines which ads to show to customers based on a combination of the
advertiser's bid and the ad's relevance to shopping queries.
9
10
11
Bidding on Amazon Ads is a second price auction. This means that the advertiser who bids with the most
relevancy wins the auction and has their ad displayed. However, the advertiser pays the amount of the
second-place bid.
For example: A shopper browses for a 4K professional video camera. Three sellers have the following
bids:
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13
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Seller 1 bids $0.75 for the keyword "4K video camera•
• Seller 2 bids $0.60 for the keyword "video camera•
• Seller 3 bids $0.45 for the keyword ·camera·
Seller 1 wins this auction because of their keyword relevancy and their high bid, but will only have to pay
$0.61 .
Learn more about auctions €)
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(Amazon removed this second price auction representation displayed above from this page
only after learning of the FTC’s investigation in October 2024 but did not disclose this
information to the FTC until August 26, 2026.)
128. Additionally, from at least 2023 to 2024, two pages targeted at authors selling books in
Amazon’s store titled “The author’s guide to Sponsored Products” and “The author’s guide
to Sponsored Brands” — located at https://advertising.amazon.com/library/guides/authorsguide-to-sponsored-products and https://advertising.amazon.com/library/guides/sponsoredbrand-authors — repeated the claim that Amazon’s advertisements were sold through “an
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auction-based … system” where the winner would “only pay $0.01 more than the second-
2
highest bid,” and provided an example shown below.
3
Example
4
If your book is a novel about war, then your campaign is targeting the keyword "war novels," and you have
chosen to bid $0.75.
5
There is also an author bidding $0.60 for the same keyword, and another author bidding on the keyword
"war books." also for $0.60.
6
7
Since you're the highest bidder and the keyword you bid on matches the shopper's query exactly, you will
win the auction and your ad will be shown. However, you only pay $0.01 more than the second-highest bidmeaning that although you bid $0.7S, you will pay $0.61 , one cent more than the second-highest bid of
$0.60.
8
9
10
Shopping qu ry
Ad
Auction
t(aywoNh.: Wl!I nowh
llod JOH
11
AW
MU1
12
- " "- 11,d
13
'°"'
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129. Further still, from at least November 2023 to November 2024, the mobile version of the
Sponsored Products webpage (located at
https://advertising.amazon.com/solutions/products/sponsored-products), as shown below,
stated that “Sponsored Products ads are placed into a second-price auction where they are
ranked based on expected click-through rate, advertiser bid, and how relevant the ad is to the
customer context.”
21
How does Sponsored Products work?
22
Ad placements are determined by matching advertiser-provided keywords and products to customer context.
Sponsored Product ads are placed into a second-price auction where they are ranked based on expected click-through
rate, advertiser bid, and how relevant the ad is to the customer context.
23
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2
130. This language led at least one Amazon employee to raise concerns about experiments
3
Amazon was running to charge advertisers prices higher than the second price auction
4
result, given that “Amazon explicitly stated that Sponsored Products ads are running under a
5
second-price auction on our website.”
6
2. Amazon’s Second Price Auction Representations Are Repeated by its Account
Managers, and Even the Head of Amazon Ads
7
8
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10
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131. Amazon also trained its account representatives to represent to advertisers that Amazon
operates a second price auction where the winning bidder only pays the amount necessary to
win the auction.
132. For example, in a February 2024 Amazon training video titled “Sponsored Ads
Proficiency Training,” the speaker says: “Amazon Ads is what’s known as a generalized
second price auction. The CPC that you’re charged is the minimum required to beat the ad
with the next highest ranked score in the auction. What this really means is that your
advertiser is never going to pay more than they need in order to win the auction.” The
training video displayed the graphic below, illustrating that the highest bidder (Bidder C
who bid $10) is charged only $7.01, or one penny more than the second-place bidder.
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2
Sponsored Ads are a
Second Price Auction
•
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0
0
0
4
•
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133. Amazon account representatives repeated these second-price representations in
11
communications and presentations they gave directly to adve1iisers and agencies where they
12
provided the same or substantially similar illustrative examples that appeared on Amazon's
13
Ads Academy online training materials.
14
134. For example, a 2023 presentation by an Amazon account representative titled
15
"Workshop: Jump staii yow- sponsored ads campaigns" contained a slide titled "How
16
auctions work" illustrating how Amazon's second price auction worked with the winning
17
bidder only paying an amount detennined by the second-place bid:
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2
3
How auctions work
Auctions detenmne which ads to show to shoppers based on the combma\lon of bid and
the ad's relevance to shopping queries Ads must meet a minimum relevance criteria
4
5
6
7
Customer
query
-
Ad
Vldeocamera
Keywo,ds: camera Video 41:
41:p<olessional
Bid: SO 75
8
Cost per click:
Appro>< SO 61
Keywo,ds: camera Video
Bid: SO 60
Keywo,ds: camera
9
Bid: SO 45
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11
12
13
135. The presenter’s notes accompanying the slide above state: “Bidding on Amazon Ads is a
14
second price auction. This means that the seller who bids with the most relevancy on a
15
keyword wins the auction and has their ad displayed. However, you only pay what the seller
16
who came in second place bids.”
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136. Similar representations were embedded in “pitch deck” presentations that were approved
18
by Amazon’s public relations and legal departments for Amazon sales representatives to use
19
to describe Sponsored Ads “in 1:1 meetings with clients and onboarding new advertisers”
20
through at least 2023, and from at least 2020 to 2023, Amazon representatives regularly
21
gave presentations that stated that Amazon Ads auctions “use a generalized second-price
22
auction model” to Amazon sellers including Sony, Samsung, Harman JBL, and Coach.
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137. These explicit false representations that Amazon Ads uses a second price auction were
2
not limited to sales meetings. In February 2024, the Senior Vice President in charge of
3
Amazon Ads was personally emailed by the CEO of an advertiser, who asked: “Regarding
4
pay per click[,] If I put in a very high dollar amount per click, does that mean it will cost me
5
that much per click, or will the system only charge me the going rate for that keyword at
6
that time. So for example, if the competition is bidding between $1.50 and $2.00, if I bid $5,
7
will it charge me 5 or will it charge me somewhere between 1.50 and 2.00[?]”
8
138. The head of Amazon Ads replied with the same false representation that Amazon
9
consistently makes to its advertising customers: “Generally, the amount you pay is governed
10
by a generalized second price auction - which means that the amount you pay for a click is
11
dependent on what the next lowest bid is. So, if you bid $2.00 and the next lowest bid is
12
$1.00, you win the auction and pay $1.01.” The advertiser then confirmed that he had
13
executed his bidding strategy in reliance on this false representation: “Yes that is perfect[.]
14
So I just went ahead and put 5 dollars so that I for sure win every keyword. Thanks for
15
everything.”
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3. Amazon Is Aware That Its Second Price Auction Representations Have Been Widely
Understood and Repeated By Amazon’s Partner Network and Throughout the Industry
17
18
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21
22
23
139. Amazon’s representations that it operates second price auctions have also been widely
understood and repeated by companies that assist businesses and individuals in advertising
on the Amazon website, including ad agencies within Amazon’s Partner Network whose
services Amazon promotes to advertisers.
140. Within the last decade, an industry of companies has developed that assist companies and
individuals in advertising on Amazon’s e-commerce website. Members of this industry,
ranging in size from large national advertising companies to small, highly specialized digital
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advertising firms, have repeatedly described on their websites and online posts that Amazon
2
runs a second price advertising auction in which the winning bidder would pay just slightly
3
more than the next-highest bidder.
4
141. Amazon Ads partner agencies have repeated on their own websites the guidance they
5
receive directly from Amazon in its training materials and presentations, including that
6
Amazon operates a second price auction where the winning bidder pays only one penny
7
more than the next highest bidder. For example:
8
In January 2020, Amazon Ads partner Feedvisor posted a blog titled
“Walmart vs. Amazon: A Comparison of Advertising Platforms,” which
contrasted Walmart’s then “first price bid auction,” with Amazon’s “secondprice bid auction” where “you would only pay 1 cent above the secondhighest bid in the auction[.]”
In August 2021, Amazon Ads partner PPC Entourage posted an article titled
“Amazon Ad Bidding Strategies Every Seller Should Know,” stating
“Amazon follows Second-Price Auction rules in which the highest bidder only
pays $0.01 more than the second-highest bidder.”
In August 2023, Amazon Ads partner Teikametrics posted a blog titled
“Guide to Amazon Advertising for 2024,” stating: “Keep in mind that
Amazon Sponsored Products ads are purchased in a second-price auction.
This means, assuming you have a winning bid for a given placement, you pay
one-cent over the next highest bid, which may be less than your exact bid
amount.”
In December 2023, Amazon Ads partner Jungle Scout posted a guide titled
“2024 Amazon Advertising Guide for Sellers,” which provides “you won’t
necessarily pay $0.50 either—your actual cost may be much lower, as it
depends on what the next-highest bidder has budgeted. So if your closest
competitor is bidding $0.35 per click, you’ll only pay $0.36 for a click—just
enough to one-up them.”
In January 2025, Amazon Ads partner Ads Badger posted a blog titled
“Amazon Advertising Stats (2025 Update),” which states that “the price you
pay is just a penny more than what is the next highest bidder is willing to pay
for that keyword. For example, if you bid $3 and the next highest bid was
$1.00, then your CPC would be just $1.01 even though the highest bid was
$3.”
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In September 2025, Amazon Ads partner Canopy Management posted an
article titled “How Much Does Amazon Advertising Actually Cost in 2025?,”
which provides: “The system uses auctions, so you typically pay just one cent
more than the second-highest bidder. If you bid $1.00 and the next person bids
$0.75, you’ll pay $0.76.”
In February 2026, Amazon Ads partner SellerMetrics posted an article titled
“Amazon Bidding Strategies: Fixed vs Dynamic / New Prod vs Old,” stating:
“To optimize Amazon Ad bids, it’s important to understand the logic behind
winning the ad auction. Amazon uses what is called a ‘Second Price
Auction.’ A second price auction refers to an auction where the winning offer
will always be a penny more than the next highest bid, all else being equal. It
is important to understand this because it means that you do not have to spend
your maximum CPC bid to win an ad auction.”
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4. Amazon’s Advertising Customers Believe That It Conducts Genuine Generalized
Second Price Auctions, As Promised
10
142. In sum, Amazon continued through 2026 to represent to agencies and advertisers that it
11
runs second price auctions where the winning bidder only pays an amount just necessary to
12
win the auction even though by 2019 Amazon began overriding the second price auction
13
results and instead inflated prices using secret reserve pricing.
14
143. Amazon knows that advertisers’ incorrect understanding that Amazon runs second price
15
auctions affects the way that they bid. For example, a manager in charge of pricing for
16
Sponsored Products auctions wrote in a February 2024 message: “Many advertisers bid far
17
higher than what they are willing to pay … because they assume its GSP.” In the same
18
message, he acknowledged that this assumption was false: “We don’t strictly do GSP, since
19
we have reserves.” A 2023 Sponsored Products memorandum also acknowledged
20
advertisers bidding “extremely high” based on their understanding that they were
21
participating in a second price auction: “some advertisers bid extremely high in order to
22
dominate auctions while continuing to pay second-price CPCs that are a small fraction of
23
the unadjusted bids.”
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144. A principal scientist on the Sponsored Products auction team also explained in 2024 that
2
advertisers were unaware that Amazon did anything other than apply second price auction
3
rules. When another member of his team asked if he thought that she could publish a paper
4
about some of her work on Amazon’s “black box auction changes” including its reserve
5
prices, he told her it was unlikely, because “the mention of” Amazon Ads “tuning pricing
6
controls is new information that is not available publically [sic]” and “only GSP logic is
7
known publically [sic].”
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145. Others on the Sponsored Products auction team have expressed similar sentiments. In
June 2023, a pricing team document acknowledged:
“[M]any advertisers set a default high bid because they trust our Generalized Second
Price Auction process.”
“Many advertisers set a relatively high bid i.e. $100 or $1000 because they trust Amazon
is not running a first price auction; and advertisers choose smart bidding, espcial [sic] Up
& Down, because they believe Amazon will not simply charge their first price. This
should be obvious, just to make sure everyone is on the same page.”
146. On October 30, 2025, almost a year after learning of the FTC’s investigation, Amazon
15
first added a reference to “reserve pricing” to a single place on its website — a page labeled
16
“Understand Amazon Ad auctions” in its “Support Center.” To reach this page from the
17
Amazon Ads Support Center homepage, a user needs to either specifically search for it in
18
the search bar (using a term like “auction”), or click first on the “Bidding and Budget” link
19
on the Support Center homepage, and then “Understand Amazon Ad auctions” — but not on
20
other available links such as “Understand bidding” or “Bidding strategies for Sponsored
21
Products.”
22
23
24
147. The October 30, 2025 language on this page regarding “reserve pricing” stated only:
Reserve pricing functions help establish the value of an ad based on a variety of factors that
may include placement, context, and potential performance (e.g., the same ad placement may
have a different value during peak shopping period than a non-peak period).
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Amazon did not define “reserve pricing functions,” or disclose that its use of that term means
that it replaces auction results with higher prices that it sets itself.
148. In March 2026, Amazon again updated the reference to “reserve pricing functions” on the
“Support Center” page to read as follows:
10
Because different ad placements offer different value to advertisers, shoppers, and
Amazon, reserve pricing functions may affect the cost of your ad. Some reserves
help allocate ad space by setting a bid threshold. Your bid must meet this amount
to be allocated, and you'll be charged at least this amount if your ad wins. Other
reserves influence your final CPC or vCPM based on factors including the
likelihood that the ad will lead to a sale, predicted return on your ad spend, the value
of any competing bids, placement, context, and predicted performance (e.g., the
same ad placement may have a different value during a peak shopping period than
a non-peak period). As a result, the price charged to you may exceed the runner-up
bid but will never exceed the maximum bid you authorize.
11
149. The quoted paragraph above is one of several on the “Amazon Ads auctions” page under
12
the header “Ad selection and pricing.” An example of the page’s appearance, with the above
13
paragraph highlighted, is below:
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Understand Amazon Ads auctions
2
Learn how Amazon Ads auctions work and how to effectively manage your campaigns.
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Ad selection and pricing
Within the Amazon store, we offer a range of ad formats and placements across a variety of pages and contexts. Our goal is to connect
advertisers to shoppers at the right moment in the ir shopping journeys. Shopping involves searches, visiting product detail pages,
comparing products, considering products others have purchased or offerings from different brands, and other steps-often in a single
purchase. Customers may encounter a brand or product several times during their journey in different formats and contexts. Often, a
single search or product detail page will contain multiple different ad units-each of which has unique characteristics. To help choose
the ads that appear in those placements and to determine the price, we usually run auctions.
We run billions of auctions each day with multiple auctions often running simultaneously on a single page because of the variety of
placements and ad formats. You may win one auction and not others on that page because of the unique qualities of each placement.
your ad, and what else is on the page. o two auctions are entirely alike.
Our auctions evaluate a variety of factors in determining what ads to show, placing particular value on the ad·s expected relevance to
the customer. We predict what will help customers find, discover, and buy the products and services they want based on variables like:
The content surrounding where the ad will go
• The customer's search query (if applicable)
The likelihood a customer will engage with the advertised product or service
The customer's shopping interests
How these variables interact may change across ad opportunities as we try to place your ad in the context the customer will find most
useful. As a result, ads with lower bid amounts, but higher relevance to the customer, can and do win our auctions.
ause different ad placements offer different value to advertisers, shoppers, and Amazon, reserve pricing functions may affect the
ost of your ad. Some reserves help allocate ad space by setting a bid threshold. Your bid must meet this amount to be allocated, and
ou'll be charged at least this amount if your ad wins. Other reserves influence your final CPC or vCPM based on factors induding the
ikelihood that the ad will lead to a sale, predicted rerum on your ad spend, the value of any competing bids, placement, context, and
redicted performance (e.g., the same ad placement may have a different value during a peak shopping period than a non- eak eriod).
a result, the rice cha ed to u m exceed the runner-u bid but will never exceed the maximum bid u authoriz
We are cont inually experimenting to refine and improve our ad auctions, customer experience, and the performance of the ads we
show. This might include introducing, removing, or modifying the data points or factors used in the auction process, or introducing new
formats and features that help make ads more useful to customers while delivering returns to advertisers.
Campaign management
Given the variety of factors that go into ad auctions, you can effectively manage your advertising investment by reviewing your
campaign performance and adjusting your bids to meet your goals. Rather than trying to optimize for specific auctions, focus on setting
bids that align with your overall goals and adjust them based on the balance between performance and cost that works for you.
As your campaign runs, you should closely monitor your performance using the ~ R 2 t l i ! ) g ~ we provide to ensure your
campaign is meeting your goals; if it's not, you can adjust your campaign settings anytime to achieve a set-up that works for you.
As you consider what to bid, be sure to review relevant product materials to understand bidding strategies and options, and other
campaign features and options, so you can set up your campaign in a way that's most likely to help reach your advertising objectives.
Note: We will never charge you more than the maximum bid you authorize and you should only bid what you are willing to pay.
Accordingly, as you enter your bids, make sure to account for applicable bid adjustments and dynamic bidd ing features that may
increase or decrease your entered bid amount for some ad opportunities.
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150. This reserve pricing reference on one page on Amazon’s website fails to clearly and
conspicuously disclose the nature, scope, and extent of Amazon’s secret reserve pricing
systems that have been in place since 2018. There are no other references to Amazon’s use
of reserve pricing to raise prices on Amazon’s public website, and Amazon has not taken
any additional steps to correct the affirmative false statements it made (and continues to
make) regarding the functioning of its auctions.
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C. Amazon’s Implementation and Concealment of Its Reserve Pricing Systems
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151. In late 2018, Amazon started to employ undisclosed “soft reserve pricing” systems that
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added secret surcharges on top of the price set by the second price auctions. Amazon
4
initially launched these hidden pricing systems to extract more profit from its Sponsored
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Brands customers. Then, Amazon began to deploy similar systems to raise its Sponsored
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Products prices in 2019. By 2023, Amazon also added hidden reserve prices to Display Ads
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auctions.
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1. In 2018, Amazon Began Inflating Prices Above Second Price Auction Results Using
Secret Reserve Pricing
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152.
From 2012 to 2018, Amazon ran generalized second price auctions, which Amazon
internally recognized as the “industry standard” for search advertising, consistent with its
representations to advertisers. An internal 2021 Amazon document titled “SP Pricing
Historical Context and Future Direction” recounted this history: “As of 2018, SP
[Sponsored Products] ran a GSP auction without any reserves,” explaining that the
“perspective was that this was an industry standard mechanism and we didn’t want to
interfere with the auction[].”
153. By 2018, however, Amazon determined it was no longer satisfied with the prices
competitively set by its second price auctions, so it began to devise ways to use secret
reserve pricing systems to add hidden surcharges above competitive pricing set by the GSP
auctions.
154. In January 2019, Amazon’s auction managers considered moving to a “first price
auction” model where the winning bidder is charged the price of its own bid (rather than a
price that is just enough to exceed the second-highest ranked bid), but recognized that if
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they did so, advertisers would lower their bids or start bid shading to avoid overpaying for
2
ad placements.
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155. Internally, Amazon managers noted that a “first price auction would incentivize
4
advertisers to lower bids in many cases, which will likely destabilize the market and likely
5
be a one-way door,” meaning a decision that cannot easily be reversed.
6
156. Amazon sought to preserve advertisers’ belief that they were still competing in genuine
7
GSP auctions so that they would continue to bid as high as possible, even after Amazon
8
secretly discarded GSP pricing. While working to maintain this false belief, Amazon
9
introduced undisclosed reserve-pricing mechanisms that allowed it to override the auction’s
10
competitively determined second-price outcome and impose higher, algorithmically
11
generated prices that Amazon internally described as the “fair market” it believed it was
12
entitled to collect.
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157. For example, an internal 2021 Amazon document called “Pricing Introduction” discussed
14
the rationale Amazon used for adding pricing controls “on top of the GSP auction” where
15
there is a large gap between the winning bid price and GSP auction price. The document
16
explained that: (1) prices set by GSP auctions can, in Amazon’s view, be “significantly
17
below ‘fair market value’” because advertisers in GSP auctions bid “the maximum amount
18
[they] are willing to pay when [their] ad is clicked” but can only “end up paying a small
19
fraction of [their] bid”; (2) this “gap between bid and charged amount” in GSP auctions
20
“leads to significant revenue opportunity cost” for Amazon; and (3) Amazon can capture
21
this “revenue opportunity” by secretly using a “soft floor reserve pricing mechanism” to set
22
prices that are closer to the winning bids to levels “beyond what would be organically
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achieved through advertiser competition.” That document is excerpted below:
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Prices computed according to GSP logic can be significantly below ‘fair market value’ in
some contexts because of a multitude of reasons (demand deficiency, large heterogeneity
in auction scores or budgets running out mid-day). For instance, in 2019, advertisers ended
up paying less [than] 50% of their bid, in average, for Sponsored clicks on the top of search
page. Reserve price controls applied on top of the GSP auction enable us to adjust CPCs
beyond what would be organically achieved through advertiser competition.
Sponsored Brands (formerly Headline Search Ads) is an Amazon native CPC
advertising program, that helps Amazon shoppers discover brands through branded ad
impressions. SB auction follows a 2nd-price auction mechanism, where highest ranked ad
in the auction is provided price-support by 2nd highest ranked ad. Due to lack of auction
depth and large difference in expected cost between top-2 ranked ads, the highest ranked
ad can end up paying a small fraction of its bid amount when clicked. Here, bid amount is
the maximum amount the advertiser is willing to pay when her ad is clicked. The gap
between bid and charged amount leads to significant revenue opportunity cost to Amazon.
In 2019, SB auction implemented soft- floor reserve pricing mechanism to monetize the
revenue opportunity. A soft floor reserve price offers (floor) price support in a 2nd price
auction mechanism, and switches the auction to follow a 1st price mechanism when bid of
winning ad falls below the reserve price. Initially, we launched query level and keyword
level reserve prices. Before Black Friday, we introduced seasonal adjustments to reserve
prices, which enabled SB to monetize large-scale seasonal events till the end of the year.
Finally, we launched automated reserve price adjustment technique, which continually
ensures a controlled tradeoff between marketplace level revenue and ROAS. Reserve
pricing has been a key driver in helping SB reach its revenue goals for 2019.
158. In short, Amazon believed that it could extract more revenue from advertising customers
than it was obtaining using a second price auction, and that the way to do it was to secretly
charge prices that were closer to the bid submitted by the winning advertiser. A Sponsored
Products team member concisely summarized Amazon’s motivation for implementing “soft
reserve” pricing in an internal memo: “Reserve prices are good for Amazon because they
don’t change the allocation [of ads] and advertisers must pay more for the same
advertising. Obviously, the benefit to Amazon comes at the cost of advertisers.”
(emphasis added).
159. Similarly, another internal Amazon document titled “Pricing for Sponsored Products”
memorialized when Sponsored Products started “using soft reserve controls” in GSP
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auctions that “had a low monetization rate,” on the grounds that “we [Amazon] were leaving
2
money on the table.”
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160. As Amazon explained in its internal documents, beginning with Sponsored Brands in
4
2018, Amazon started to employ undisclosed “reserve pricing” systems that added secret
5
surcharges on top of the price set by the second price auctions. Sponsored Brands team
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members internally described its reserve pricing as “soft floors” that are “the same thing” as
7
a “surcharge,” and referred to the actual prices charged by Amazon as a
8
“surchargedSecondPrice” that has a “a surcharge hidden in it.”
9
161. In early 2019, Amazon’s Sponsored Products “Allocation and Pricing” team also began
10
to “explore alternative pricing mechanisms.” A 2019 team planning document stated:
11
“Sponsored Products currently uses a Generalized Second Price (GSP) auction. This
12
maintains an invariant that an advertiser is charged the minimum amount necessary to win
13
the specific slot they were awarded” (emphasis added). Similarly, another team document
14
stated: “Our current pricing follows Generalized Second Price mechanisms and excludes
15
direct revenue maximizing variations” including “reserves.”
16
162. In March 2019, the Director responsible for Sponsored Products’ auctions acknowledged
17
that Amazon was increasingly “moving away from thinking about pricing with rigid rules”
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including the rule “that we must maintain GSP.” Instead, he continued, Amazon was
19
“thinking about pricing as the policy which empirically produces the best long-term
20
profitability taking into account advertiser behavior.”
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163. Although up until 2018 Amazon’s Sponsored Products auction team had been adhering to
22
the GSP auction model represented to advertisers, in 2019, they proposed a new plan that
23
included running experiments including the use of “non-GSP” pricing and a “blended
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average of first and second price” auctions, despite the representations made to advertisers
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concerning how GSP auctions functioned. While the team acknowledged that the
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experiments “must be done to minimize risk of irrevocable damage to advertiser trust,” they
3
also knew they would have to consider “tradeoffs” with respect to “fairness.” Weighing
4
heavily in favor of proceeding with these plans was the “huge opportunity” to increase
5
advertising revenue.
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164. In its 2019 operating plan reviewed by the Vice President of Sponsored Ads and other
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members of Amazon’s senior executive team, Amazon’s Sponsored Products division
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reported that it “introduced CPC reserves” in 2019, and that “[o]ur data shows a ■ ad
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revenue opportunity by improving monetization through pricing.” However, a Sponsored
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Products team document added “we cannot unlock this opportunity without a precise
11
understanding of how pricing changes influence advertiser trust and responses (e.g. changes
12
to bids or budgets),” and so the reserves were initially implemented “with extremely
13
conservative guardrails on advertiser impact to minimize risk of a permanent damage.”
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Amazon’s Sponsored Products division was primarily concerned that Amazon’s short-term
15
revenue gains might be reversed in the long-run if advertisers discovered Amazon’s tactics
16
to surreptitiously raise advertisers’ prices.
17
165. Amazon senior executives sanctioned and directed Amazon Ads’ employees to continue
18
using hidden reserves to increase revenues and, at times, even to hit periodic financial
19
targets. For example, in 2023, after noting that Display Ads was going to “miss” its then-
20
current financial “plan by
21
of Ad Products and Tech: “I’d like to pull out all of the stops (without doing unnatural acts)
22
to close our gaps to plan. I suspect that the entire gap won’t be closed, so whatever can be
23
done with reserves (ideally at least
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,” the head of Amazon Ads told the Senior Vice President
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would be helpful).” The Senior Vice President
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confirmed: “Will come back with a bridge that includes improving monetization using
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reserves.”
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2. Amazon Knew Its Auction Results Reporting Hid Its Reserve Pricing
4
166. Included in Amazon’s assessment of these risks was the fact that Amazon knew the
5
auction results it presented to advertisers were “opaque” and that advertisers would not be
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able to verify that their CPCs were set by second price auctions, as Amazon represented.
7
Because Amazon did not provide invoices or auction results at an individual CPC or
8
individual auction level, it knew that advertisers could not detect whether Amazon
9
manipulated or misrepresented the auction results.
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167. Amazon’s Sponsored Products auction team understood that advertisers’ “perceptibility”
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of Amazon’s reserve pricing is affected by Amazon’s “reporting frequency/aggregation,”
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which masked individual auction results. An internal 2020 Sponsored Products pricing
13
document noted that because “[a]dvertisers do not necessarily observe the individual
14
outcomes of repeated auctions” but instead only “observe aggregate performance over
15
sometimes very heterogeneous actions,” their “ability to causally attribute changes in
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outcome [the CPC charged] to changes in bids” is “impair[ed].”
17
168. Ultimately, Amazon was able to leverage its lack of detailed data reporting and
18
advertisers’ inability to verify individual auction results. For example, despite the
19
increasingly high first price rate in Amazon’s Sponsored Ads auctions, advertisers are
20
unaware that they frequently pay the amount that they bid for a click, rather than the
21
minimum amount needed to win the slot they were awarded, as would be the case in a
22
legitimate GSP auction.
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169. One reason that advertisers cannot detect a high first price rate is the manner in which
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Amazon reports the results of its Sponsored Ads auctions. The Sponsored Products team’s
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operating plan for 2019 described Amazon’s auctions as having “highly obfuscated
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reporting.” As one Amazon internal memo about the institution of surcharges for Sponsored
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Brands put it, advertisers are unlikely to “adjust their bids in an attempt to lower their
4
payout” because “[a]dvertisers do not have visibility into the behavior of individual
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auctions.” Instead, “[r]eporting is provided at a keyword level,” and “[t]his would make it
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very difficult for advertisers to detect and react to a 1st-price opportunity.”
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170. In addition, soft reserve prices are applied differently for different placements on the
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Amazon website — for example, at the top of the search results versus in the middle or on a
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product detail page. And Amazon’s reserve pricing systems generate different prices for
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desktop versus mobile device placements in ways that are difficult for advertisers to detect.
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In 2019, when the Vice President of Sponsored Products asked whether the use of
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surcharges might create “first price problems” for Sponsored Products, he was told that
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“[a]dvertisers can only see placement level reports that aggregate impressions across all
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devices [i.e. desktop and mobile] and cannot readily understand the relationship between
15
CPC and [their bid] as they tweak their bids.”
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171. Moreover, advertisers often do not even know the amount of their bids because they
17
adopt tools provided by Amazon to adjust their bids automatically. An FAQ document
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prepared by the head of Sponsored Products auctions in advance of a 2020 meeting between
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the Vice President of Sponsored Products and the Senior Vice President of Amazon Ads
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stated that because of the effect of these automatic bid adjustments (sometimes referred to as
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“proxy bidding” or “smart bidding”), “an advertiser doesn’t even know what bid is being
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entered (and thus can’t know if the CPC charged was first price).” Or, as the head of
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Sponsored Products auctions put it in an earlier email to the Vice President of Sponsored
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Products, the combined effects of “bid adjustments and pricing” make Amazon’s ad
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auctions a “black box” to advertisers, and “since advertisers only see the amount they get
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charged, they can’t differentiate between adjustments made by smart bidding and auction
3
pricing.”
4
172. As explained in internal memos, Amazon also believed it could further mitigate the risk
5
of detection by “setting guardrails on aggressiveness” of its reserve pricing systems and
6
“closely monitor[ing] advertiser response to pricing changes.”
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3. Amazon Designed and Implemented Its Undisclosed Reserve Pricing Systems to Avoid
Detection
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173. Amazon developed its undisclosed reserve pricing systems with several guardrails and
constraints to conceal their existence from advertisers, who believed that they were
participating in a genuine second price auction for advertising space. As Amazon
documents acknowledged at the time, Amazon “currently use[s] second price like language
when explaining CPC calculation,” and so pricing that appeared to deviate from GSP rules
would result in “eroding trust.” Accordingly, Amazon employees internally discussed the
need to use guardrails to set a “reserve price” that “simulates a ‘natural’ second price CPC
based on the second highest bid/auction runner up[.]”
174. Amazon initially launched its reserve prices in Sponsored Brands auctions during the
Christmas holidays in 2018, so that the “price increases were masked by holiday increases
in advertiser demand.” Amazon then “dial[ed] up” its reserve prices for Sponsored Brands
advertising in early 2019, but on a “slow rollout schedule” to “not increase advertiser prices
too precipitously.” After identifying a
, the
Sponsored Brands team further developed “reserve pricing controls” for Sponsored Brands
auctions in order
and get
“close to [its] forecasted target.”
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175. In mid-2019, Amazon launched reserve prices in Sponsored Products second price
2
auctions as well. The Sponsored Products team initially used reserves to increase prices for
3
search queries that had either the highest average RoAS (i.e., in order to reduce advertisers’
4
RoAS for these queries) or the lowest monetization rate (the ratio between the CPC charged
5
to the advertiser and that advertiser’s winning bid). By 2020, Sponsored Products used two
6
additional reserve pricing mechanisms. One reserve mechanism set the reserve price ■
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9
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The second reserve mechanism
10
176. From 2019 to 2021, Sponsored Products selected the highest reserve price derived from
11
these three alternative pricing systems (referred to internally as Smart Reserves V1, V2, and
12
V3) to calculate a hidden surcharge added on top of the second price auction result. In
13
2022, Sponsored Products launched the “eOPS based” pricing reserve that is in effect today,
14
and which raises advertisers’ prices in order
15
16
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177. Amazon’s policy was to keep the existence of these surcharges hidden from its account
managers and sales representatives who interacted with its advertising customers.
18
178. Sponsored Ads employees who did know about Amazon’s use of hidden reserve prices
19
carefully controlled their language, even in internal documents, to avoid further exposing
20
the secret. In April 2024, an Amazon scientist prepared a draft of a presentation on the
21
economics of advertising auctions for an internal Amazon conference that included the slide
22
below. Another Amazon scientist advised him that he needed to edit the slides, because they
23
contained the word “surcharges,” and “we have been advised to avoid this term in any
24
internal or external communication.”
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ADEXPO
Ranking and Pricing in Auctions
Real-worla complexity
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•
•
•
•
Second-price auction
Generalized - click-through rate (CTR)
Irrelevance Penalty
Surcharge
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a~~on ads
At'l,UO N (OH I U(WI 1U
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179. In July 2024, members of the Sponsored Products auction team discussed using a
12
different word than “surcharge” in their internal communications. A team member
13
prompted ChatGPT: “Give me some different terms for the term ‘surcharge’ in Sponsored
14
Product pricing. This term is currently used to describe the additional price that we charge
15
on top of the second price CPC we charge to advertisers for every click. This additional
16
price is determined based on the performance/value we deliver to advertisers through the
17
ad.” The team then considered replacing “surcharge” with alternate terms which included,
18
among others: “value adjustment,” “price refinement,” “price adjustment,” “inflated CPC,”
19
“price exaggeration factor,” “performance premium,” and “profit extraction lever.” The
20
auction team ultimately suggested “performance premium.”
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4. Amazon Placed Guardrails on Reserve Prices to Keep Surcharges Secret
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180. To hide these surcharges and Amazon’s abandonment of second price auctions from
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advertisers, Amazon used “guardrails” and “
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capped the size of surcharges
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both the guardrails and the
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and second-place bidders.
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Amazon applied
constraints after the auction established the winning
constraint or guardrail,” which
due to hidden
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surcharges, rather than one penny or slightly more than the second-place bidder. Internally,
7
Amazon discussed the need to be “extremely cautious” and having “strict bounds on ■
8
” when they started using reserve prices because
9
10
11
12
182. Accordingly, the initial
constraint set by Amazon was only ■ , so that the
reserve pricing system would be restricted from charging
. In 2020, two applied scientists working on
13
14
Sponsored Products’ auctions discussed how
constraint should limit the
15
likelihood that advertisers would discover the surcharges and realize they could reduce what
16
they pay by lowering their bid: “Basically, we want to ‘bound the probability that any
17
advertiser shading their bid would find a soft operating point (where they win and get
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charged a lower cpc).’”
19
183. Amazon internally described “surcharge constraints” as “a way to bound how far we
20
deviate from GSP [generalized second price auctions] to avoid discussions about us ‘not
21
running an auction’” and to “minimize the possibility of loss of advertiser trust.” These
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surcharge constraints capped the “surcharge rate” (i.e., the percentage amount above the
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second price auction price that Amazon would charge customers as a result of its reserve
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prices) at two levels.
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184. In 2020, the Director who oversaw Sponsored Products auctions summarized for the Vice
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President of Sponsored Products why “the
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advertiser who used automatic bid adjustments, and as a result “doesn’t know what bid is
6
being entered
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even with automatic bid adjustments, “if an advertiser adjusts their original bid up, they will
8
get charged a higher CPC for existing clicks being charged first price,” and “if they adjust
9
their bids down, they’ll see a corresponding decrease in the CPC.” To avoid advertisers
10
realizing that they were not, in fact, competing in a genuine second price auction, and could
11
reduce what they paid by lowering their bids, the
12
Amazon to minimize the “risk” of “what advertisers observe if they change bids[.]”
13
185. Over time, Amazon experimented with higher
guardrail” mattered even for an
He explained that
-
constraint was still needed by
constraints in non-U.S. markets.
14
In February 2021, Amazon “decided to target a cumulative 20% CPC increase” in Germany
15
and an up to 9% CPC increase in the United Kingdom, France, Italy and Spain. To do so,
16
Amazon implemented a “blend” of its then current auction, which it described as a “GSP
17
with low/moderate soft reserve prices” and an “(effectively) first-price auction which it
18
defined as a “GSP with very high soft reserve prices” across “all traffic at the marketplace
19
level.”
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186. Internally, in 2022, the Sponsored Products auction team noted that they “have been
21
closely monitoring and haven’t detected significant behavior change regarding advertisers’
22
budgets and bids due to the launch of eOPS based pricing.” In particular, as the first price
23
rate — the percentage of clicks charged at the winning bid price — increased to 70% in
24
2022, the Sponsored Products team observed “no sign of bid shading or budget decreases”
COMPLAINT - 64
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1
from advertisers who consistently were charged the price of their maximum bids for more
2
than 90% of their CPCs. The Sponsored Products team recognized it could “test bid
3
shading” by “analyzing the gap between advertisers’ bid versus” the GSP auction result of
4
the “minimum winning price (1 cents plus the runner up bid).”
5
187. In subsequent years, Amazon continued to experiment with increases in the first price
6
rate (despite continuing to represent to its advertising customers that they were participating
7
in a GSP auction). For example, in the summer and fall of 2024, Amazon conducted an
8
experiment “to understand the impact of a first price rate … increase on advertisers and the
9
marketplace” by increasing the first price rate for some advertising customers in Spain from
10
48% to 80%.
11
12
188. Amazon’s pricing experiments confirmed its belief that its customers were unable to
detect its increasing hidden surcharges and resulting first price rates.
13
189. An internal Sponsored Products operating plan noted that in 2024 the “first price rate was
14
79.1%,” and further noted this “means that we are close to charging the maximum amount
15
the winning ads are currently bidding,” and “that the potential for future CPC growth is
16
limited, unless we can nudge advertisers to increase their bids.”
17
190. Amazon considered it important to make sure that advertisers were unaware of how often
18
they paid their own bid, because if advertisers learned that information, they would
19
understand that Amazon was operating its auctions like a first price auction, and therefore
20
advertisers would likely bid shade in an effort to lower their prices. One Amazon employee
21
succinctly summarized the issue with “advertiser perception” in a 2020 email: “Imagine
22
being an advertiser and seeing most of your clicks being charged a CPC equal to the
23
bid you specified (original bid). It will alter how you approach bidding.” (emphasis
24
added).
COMPLAINT - 65
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5. Amazon Set Reserve Prices to Limit Advertisers’ Return on Ad Spend
2
191. Amazon believed that its advertising customers focused primarily on their Return on Ad
3
Spend, known in the advertising industry as “RoAS,” to measure the success of their
4
advertising campaigns. Accordingly, Amazon’s use of soft reserve prices was focused on
5
capturing the share of advertiser RoAS that it believed it could extract without a negative
6
advertiser reaction. In a 2020 internal memorandum, the Sponsored Products auction team
7
reported that “advertisers seem to be more directly responding to ad spend/RoAS changes as
8
opposed to clicks being charged first price,” and “given the empirical data we have on
9
advertiser response to RoAS changes, we will use it as the main signal to tune our pricing
10
controls.”
11
192. That same year, Amazon’s Sponsored Products auction team
12
13
Amazon
14
15
then imposed a reserve pricing constraint for each cohort based on a
16
17
193. In 2021, Amazon’s Sponsored Products auction team tested a new pricing mechanism,
18
known as the “eOPS [estimate of the ordered product sales] based pricing” reserve,
19
-
20
21
194. The eOPS based pricing model was successfully deployed to secure Amazon’s revenue
22
targets for Prime Day in 2021, resulting in the below report in a July 2021 “Pricing Business
23
Review”:
24
COMPLAINT - 66
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interventions resulted in . The eO~
s 1
1
2
3
Page 71 of 181
goal of keeping
marketplaces.
4
195. The eOPS based reserve pricing
5
The percentage of eOPS
6
used to calculate each reserve price was
7
As an internal document explained, Amazon increases its GSP auction prices by adding
I
8
9
196. Amazon initially
11
12
"can be
changed at any point based on the business requirement."
13
14
6. Amazon Further Expanded Reserve Pricing Systems After 2021
15
16
17
18
19
20
21
22
197. Amazon widely expanded its use of hidden reserve pricing in Febmaiy 2022 when
Sponsored Products launched the eOPS based reserve system across the U.S. marketplace.
Internally, the Sponsored Products auction team observed in 2022: "[w]ith eOPS based
Pricing, we apply reserve prices on 70% of clicks."
198. An internal Amazon memorandum from later that year titled "eOPS Based Pricing Deep
Dive" presented the below chaii showing the additional "Aggregate Surcharge" applied in
Sponsored Products second price auctions from September 2021 to September 2022. The
cha1i shows the gradual increase of the average surcharge rate from below
23
, with spikes up during high shopping periods in November through
24
COMPLAINT - 67
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1
early December 2021 (weeks 45 to 50), and again in July 2022 (around Prime Day, weeks
2
26 to 29).
11
199. By the middle of 2024, an Amazon document reported that the average U.S . marketplace
12
surcharge rate for Sponsored Products had increased to •
13
customers were on average paying-
14
its GSP auction as represented. On peak shopping days, such as Prime Day, Amazon's
15
average surcharge rate soared to as high as _
16
the actual pricing detennined by Amazon's auctions.
17
. Thus, Amazon's adve1i ising
more than they would have if Amazon operated
, driving prices and customer costs far above
200. Sponsored Products continuously tracked key pricing metrics for the United States
18
showing the escalating impact of its reserve systems on the ad placements it sold, including
19
the first price rate, monetization rate, and the percentage ofrevenue from reserves (which
20
coITesponds to the "aggregate surcharge" rate in the chaii above). These metrics were
21
displayed in weekly business review (or "WBR") reports distributed to the Sponsored
22
Products auction team.
23
24
201. The Sponsored Products WBR repo1is also tracked the "Top 50 most impacted
adve1iisers" by surcharges in the U.S. mai·ket. The reports identified the adve1i isers by name
COMPLAINT - 68
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1
and ranked them according to the total hidden surcharge amount they each paid that week
2
(“Reserve Revenue”). The reports also displayed for each advertiser: (i) what percentage of
3
their total weekly payments was due to surcharges (“% of Revenue from reserve”); (ii) the
4
RoAS they should have earned at the GSP auction result (“GSP RoAS”); and (iii) the
5
reduced RoAS they actually earned as a result of the surcharges added above the GSP
6
auction result.
7
202. The Sponsored Products WBR report tracking the most impacted advertisers during a
8
week in December 2023 illustrates how Amazon secretly overcharged its customers tens of
9
thousands of dollars per week and dramatically reduced their RoAS. For example,
10
according to the report, Amazon overcharged “Pampers”
, while “Gatorade”
11
12
13
203. The Sponsored Products WBR reports establish that Amazon’s surcharges cause
14
substantial increases in: (i) the percentage of times that customers who won the auction are
15
charged the same price as their bid, rather than the second price, as a result of the hidden
16
surcharges (“First Price Rate”); (ii) how close to customers’ winning bids Amazon secretly
17
set prices, expressed as a percentage (“Monetization Rate”), and (iii) the percentage of
18
Sponsored Products revenue across the whole marketplace that is derived from the
19
undisclosed surcharges (“Aggregate Surcharge Rate”).
20
204. A comparison of the data contained in these reports between a five-week period covering
21
late September 2020 to October 2020 to a five-week period covering mid-October 2023 to
22
November 2023, reveals that over this 3-year period, Amazon had:
23
24
raised the First Price rate from 4% to 52-64%;
increased the Monetization Rate from approximately
COMPLAINT - 69
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and
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•
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raised the Aggregate Surcharge Rate from
205. During this time, the Sponsored Products auction team observed in 2022 that, since its
3
launch, the "eOPS based [reserve] pricing has been nearly fully constrained" by either (i) the
4
surcharge constrnint (at the time, _
5
bidder's bid after any adjustments from automatic bidding strategies (or "max bid"). This
6
means that the price calculated by the eOPS system often exceeded either the surcharge
7
constraint or the winning bidder's max bid. As a result, the surcharge constraint and
8
advertisers' max bids often constrained how high Amazon 's eOPS reserve pricing could
9
adjust the price Amazon charged adve1t isers.
1o
above the GSP auction result) or (ii) the winning
206. According to an internal 2022 Amazon document, the "surcharge hit rate has been
11
consistently -
and the max bid rate" -
i.e., the first-price rate - "has been 60%." As
12
the Sponsored Products auction team put it: "CPC is still largely defined as -
13
CPC or max bid for close to 90% of clicks." As the team acknowledged, 90% of the time,
14
Amazon was charging adve1t isers an aitificially inflated price that was either - more than
15
the GSP auction result or was equal to their first price/maximum bid.
16
D. Amazon Continued to Increase Surcharges While It Decreased Advertisers' RoAS
above GSP
17
207. Amazon continued to conduct pricing experiments, and surveyed and interviewed
18
advertisers regarding their ROAS to assess how much higher Amazon could increase
19
undisclosed surchai·ges without detection. An internal 2023 Sponsored Products
20
memorandum discussed "[h]ow much more can we push for soft reserve," and "[a]t what
21
point will we see adve1tisers respond to an increase in soft reserve."
22
208. As a result, Sponsored Products managers explored different mechanisms to increase
23
hidden surchai·ges and generate more adve1tising revenue, which included raising the
24
surcharge constraints in the eOPS reserve system, using the automatic bid adjustment
COMPLAINT - 70
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1
system to increase the winning advertiser bids, and increasing undisclosed price floors
2
(referred to internally as “hard reserves” to distinguish from the “soft reserve” system) that
3
advertisers’ bids had to exceed to participate in the auction.
4
209. In 2023, Sponsored Products ran pricing experiments to test the impact of different hard
5
reserve values on eOPS reserve prices. After observing no “significant changes in bids and
6
budgets by advertisers” in response to changes in higher hard reserve values, Sponsored
7
Products increased the hard reserves from
8
in the U.S. marketplace.
9
for TOP (Top of Page) placements
210. Around the same time, Sponsored Products also began running a large-scale pricing
10
experiment on advertisers to assess the impact of increasing the surcharge constraint in the
11
U.S.
13
-
14
higher than other Amazon ads products or other ad platforms … so we hypothesized that a
15
further increase in CPC and decrease in RoAS can be sustained by the marketplace.” At the
16
time, Amazon’s
17
hoping to increase surcharge constraints as part of its efforts to increase prices and further
18
reduce advertiser RoAS by about 8%.
12
19
. An Amazon engineer on the Sponsored Products team explained that Amazon ran
this experiment because “[i]n Q1 2023, US SP search RoAS
-
-
[was] significantly
for Sponsored Products search ads was
-
, so Amazon was
211.
20
21
Amazon then raised the surcharge constraints from
22
from
23
the average CPCs paid by the advertisers in the experiment increased by 2%. The auction
24
team chose to test a 2% increase as “a tradeoff of being large enough to detect the change in
COMPLAINT - 71
Case No. __:___-cv-______
and
, with the result that
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1
CPC and advertiser response … while being small enough to limit negative effects if they
2
occur.”
3
212. Amazon initially ran the experiment for eight weeks in May and June 2023, and after
4
observing “no significant changes in advertiser behavioral metrics including bids and
5
budgets,” elected to run a second phase for an additional 19 weeks from June to November
6
2023. In an internal report, the auction team attributed
7
to the surcharge increase and concluded that these results showed that the revenue increase
8
was “durable over the long run.” The experiment also concluded that Amazon was able to
9
both increase its prices and revenue from advertisers by 2% while decreasing their RoAS by
10
2%. As a result, Amazon kept the surcharge constraint at
11
that hidden surcharges could increase advertisers’ CPCs by as much as
12
auction results.
of annualized revenue
- -
permanently, which meant
above the GSP
13
213. In 2024, Amazon conducted another large-scale pricing experiment on advertisers to test
14
the effects of a larger change in the soft reserve price on advertisers’ bids and budgets. In
15
this experiment, Amazon
16
Amazon found that
17
when it did this, advertisers responded by only increasing their bids and budgets by less than
18
19
-
214. Amazon’s Consumer Behavioral Analytics team, an internal data science and engineering
20
group, helped design the pricing experiment and prepared a research paper on the
21
experiment design titled “How Do Advertisers React to Changes in Ad Auction Pricing?”
22
for an international conference on Knowledge Discovery and Data Mining (“KDD”) in
23
August 2024. In September 2024, the research paper appeared on a publicly accessible
24
COMPLAINT - 72
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1
webpage on Amazon's website listing research papers from Amazon scientists and on the
2
KDD conference's website listing papers submitted for the conference.
3
215. On September 20, 2024, the Sponsored Products ' manager overseeing auction pricing
4
immediately took steps to remove the paper from both websites so that it would no longer be
5
publicly accessible as soon as he discovered it online. In an internal chat with another
6
Sponsored Products' auction member, after discovering the paper "does mention soft
7
pricing, reserve prices" and is "accessible outside Amazon," he stated: "I should have been
8
on top of this." "Crap." "I am talking to the [KDD conference] organizers to see ifwe can
9
take it down .... Update: it's been taken down now."
216. In mid-2024, Amazon reported internally that its adve1i isers' average ROAS "has been
11
steadily declining over many quaii ers" and was "at an all-time low" at.in the U.S.,
12
declining by 10% in the first quaii er of 2024, and that as a result of the higher adve1iising
13
costs, a lai·ge shai·e of sellers in several top product categories on Amazon's e-commerce
14
website were "operating under negative margins."
15
16
217. A 2024 internal memorandum contained the graph below showing the downwai·d trend of
advertisers' average ROAS on Amazon in the U.S mai·ketplace since 2020.
17
18
19
20
21
22
23
24
COMPLAINT - 73
Case No. - :- -cv-- -
FEDERAL TRADE COMMISSION
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Case 2:26-cv-03097
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