The Amazon auction that was never quite second price

What the amazon ppc advertising lawsuit actually alleges#

On 31 August 2026 the Federal Trade Commission, joined by 22 state attorneys general, sued Amazon in federal court in Washington state over how it has run its ad auctions since 2019. The complaint is plain about the number: it alleges Amazon “likely illegally extracted” more than $20 billion from over 1.2 million advertisers, spread across seven years nobody outside the company was told had changed.

The states named span the map, from Alaska and Washington on the coasts to Colorado, Kentucky and Vermont in between: Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington. Federal reach, state co-counsel, one shared claim, per the FTC's own release.

Here is the mechanism, in the shape TechCrunch's reporting on the complaint and UPI's both lay it out. Amazon told advertisers, in training materials and public documentation, that Sponsored Products ran a second-price auction: bid what the placement is worth to you, win, and pay one cent more than the next-highest bidder. A seller who genuinely valued a click at 75 cents could bid that number with a clean conscience, because the honest bid was also the safe one for amazon ppc advertising.

The FTC says that stopped being how the auction worked. In 2019, without telling a single advertiser, Amazon added what an internal document called a “soft reserve price”, a figure calculated after the winner was already decided. Internal documents reportedly labelled the mechanism itself the “surchargedSecondPrice”, and the complaint quotes the executive in charge of Amazon Ads describing the price an advertiser paid as set not “by an actual bidder” but by a “proxy 2nd price” Amazon calculates on the fly, per UPI's reading of the filing.

The bidder that was never really there#

The sharper allegation sits one layer below the soft reserve. Internal documents, both outlets report, describe an “invented auction participant”, a manufactured competitor invented to push the clearing price “beyond what advertiser competition” could achieve on its own. A second-price auction only stays honest if the second price comes from a second bidder. Fabricate that bidder and amazon ppc advertising stops being second-price in anything but name.

By 2024, the FTC alleges, Sponsored Products advertisers were charged their own full winning bid close to 80% of the time, up from roughly 30 to 40% in 2021. Sponsored Brands advertisers hit that same full-bid outcome about half as often. A generalised second-price auction, run honestly, should rarely charge the winner their own number; run it this way instead and the auction is a first-price auction wearing a second-price name tag, documented in seller-facing coverage of the complaint.

Read that chart the way you would read a rigged scale: the fox does not need the whole trail explained twice to know which way the scent bends. Sixty-one cents was the honest clearing price Amazon's own materials describe. Seventy-five cents, the advertiser's own bid, is what the FTC says actually got charged close to eight times in ten. The fourteen-cent gap in between has a name now, and it is not a coincidence.

Amazon disputes all of it, and calls the case “misguided”. Its own defence, per UPI's account of Amazon's statement, is that average winning bids for Sponsored Products fell by half between 2019 and 2025, that inflation-adjusted CPC held flat over the same years while views-to-sales grew, and that ad relevance rather than raw bid decided the winner 92% of the time. Whichever version a court eventually credits, the complaint (and the mirrored filing lodged by New York's Attorney General) is now the baseline every amazon ppc advertising budget gets measured against, not a rumour on a forum.

Why the amazon advertising cost model quietly stopped matching the label#

Auction theory has a genuinely boring answer to why a second-price design earns a seller more trust than a first-price one, and it is worth sitting with for a paragraph before returning to the alleged surcharge, because the whole case turns on it.

In a clean second-price auction, bidding your true value is the mathematically dominant strategy: shade your bid down and you might lose a placement you would have happily paid for, shade it up and you only ever risk paying more than the item was worth to you, so honesty costs nothing. That is the entire pitch Amazon made to advertisers, and it is why so many sellers reportedly set bids as high as “$100 or $1000”, trusting the mechanism to protect them from ever actually paying that number.

First-price auctions ask something different of a bidder: shade the bid down, deliberately, because you now pay exactly what you offer. The wider ad industry has watched this trust problem before. A 2020 Carnegie Mellon study traced the open web's own move from second-price to first-price, and one author put the underlying worry in plain words: opaque exchange pricing had simply “aroused suspicion about reserve and second-price determination”. Amazon's alleged surcharge is that suspicion, confirmed seven years and one industry over.

There is one academic subtlety worth adding, because folkfox thinks it is underused in this debate. Research in Information Systems Research finds that revenue equivalence between first-price and second-price auctions, the textbook result that the seller earns the same either way, breaks down once bidders optimise for return on ad spend rather than raw payoff. Sellers running amazon ppc advertising almost never bid on pure profit; they bid to a target ACOS, exactly the ROI-style objective the paper shows behaves differently under the two formats. Change the format quietly and you have moved the goalposts for every bidding tool built the way most Amazon sellers' tools are.

Amazon's own cost-per-click guide does not help an advertiser check any of this in the moment: it tells sellers a final CPC is typically determined by an auction and based on your bid plus other factors, which is true and almost entirely uninformative, naming an auction without disclosing a mechanism, a reserve, or a rule-change calendar. That vagueness is not unique to Amazon.

It is why the Media Rating Council spent 2025 drafting, and finally published in January 2026, the industry's first shared Digital Advertising Auction Transparency Standards, from which auction type runs and how a winner is chosen to how often the rules change and what gets reported back. The standards name retail media auctions explicitly, alongside search, social and streaming, a quiet admission that Amazon's category needed the same discipline everyone else was already getting.

Adoption is voluntary for now. The IAB Tech Lab has run a parallel effort since 2017 building a shared vocabulary for what a programmatic auction even is, on the theory that a buyer cannot audit a mechanism nobody has agreed how to name.

None of this proves Amazon's guilt or innocence. It does prove that amazon advertising cost has never been something an advertiser could verify from the outside, which is precisely the condition the FTC says Amazon exploited for seven years and the condition every new transparency standard exists to close.

What it means for sponsored product ads, amazon sponsored brands and amazon dsp advertising#

A full Amazon ad stack is amazon ppc advertising plus one further layer, and the complaint does not touch either evenly. Sponsored Products carries the sharpest allegation: close to 80% of 2024 auctions allegedly closed at the advertiser's own bid. Sponsored Brands, the banner-style placements carrying a brand's own creative above the results, sits at roughly half that rate. Amazon DSP advertising, the programmatic layer buying display and video off Amazon's own properties and across the open web, is not named in the same allegation at all, because it clears through a different auction on different rails.

That distinction matters for where you spend your next audit hour. A seller worried about amazon ppc advertising integrity should look hardest at Sponsored Products first, treat Sponsored Brands as a secondary check, and treat amazon dsp advertising as a separate question, since DSP inventory is bought and cleared through mechanisms the complaint does not describe.

None of that reach changes what an advertiser can do this week. A lawsuit takes years; a bid sheet takes an afternoon. The sensible response to sponsored product ads exposure is the same however the case ends: stop trusting the label on the auction and start checking the receipt.

That is also the honest answer to the amazon sponsored brands question folkfox gets asked most often this week, which is whether brands should pause spend while the case runs. Pausing amazon sponsored brands campaigns punishes the brand, not Amazon, and does nothing to answer the one question that actually matters here: is your own bid to CPC ratio behaving the way a genuine second-price auction should. Keep spending, and start measuring.

How to audit your amazon ppc advertising spend today#

Here is the part of amazon ppc advertising that does not wait for a verdict. Every audit step below uses reports Amazon already gives you, because the entire point is to check the auction with evidence you already hold, not evidence you have to request.

The point of that list is not paranoia, it is proportion. A folkfox client running amazon ppc advertising at real scale does not need to distrust every auction; they need one afternoon a month set aside to check the ones that matter, using a method a fox would recognise: track the same ground long enough and the pattern that does not fit stands out on its own.

That thread is worth reading in full: it comes from someone who runs quantitative Amazon bidding models for a living, not a headline aggregator, and the detail he adds is the one that matters most to a working advertiser, that his own data showed the charged CPC equalling the bid far more often than a genuine second-price auction should produce, well before the FTC's number gave the pattern a name.

If you run amazon dsp advertising alongside Sponsored Products, the audit above will not touch it directly, and that is fine. DSP deals are negotiated and cleared differently, and folding them into a Sponsored Products investigation just muddies both. Keep the two questions separate, and you keep the answer to each one honest.

What to watch while the case runs its course#

A cunning mechanism is not necessarily a fast one to unwind. A federal case against a company the size of Amazon does not resolve in a news cycle, it resolves in years, through motions, discovery and very possibly a settlement that never uses the word guilty. None of that timeline should set your amazon ppc advertising cadence: keep one paw on the bid sheet and let the rest of the business run normally while the case does its own slow work.

Treat the audit in the section above as the first month of a standing habit, not a one-off reaction to a headline. Rerun the bid-versus-CPC comparison monthly, keep the log, and watch three figures specifically: your full-bid match rate on Sponsored Products, the same figure on Sponsored Brands, and your blended amazon advertising cost per acquisition against your own trailing average. A rate that climbs quietly, the way the FTC alleges Amazon's did between 2021 and 2024, is the kind of drift a monthly glance catches and a quarterly review misses.

Take the same discipline to your reporting up the chain. A board or a client does not need the legal detail, only one line that survives the next news cycle: here is what we checked, here is what we found, here is what changes if the answer moves. That is the version of this story finance will actually fund.

It is also worth saying plainly what this case is not. It is not a reason to abandon sponsored product ads, and it is not evidence that amazon sponsored brands or amazon dsp advertising are worse channels than the alternative. Every auction-based platform, from search to social to retail media, prices attention in ways an advertiser cannot fully see from outside. The lesson here is not retreat, it is verification, and folkfox's paid search practice has spent this year building exactly the reporting layer that turns verification into a habit rather than a one-off scramble.

For a brand weighing whether its wider positioning can survive a regulatory story like this one, the honest answer usually has less to do with Amazon and more to do with how clearly the brand can state its own numbers when a journalist or a regulator comes asking. That is a brand strategy question as much as a media-buying one, and it is worth working through before the next headline forces the issue.

This is not the first time a platform has changed its rules without quite saying so out loud, and folkfox has written about it before. Amazon's own creator-placement rollout did the same thing to Sponsored Products inventory in a smaller way this August, and the Google Ads change to Manual CPC bidding removed a lever advertisers had relied on for years with barely more notice. The pattern is not new. The size of this particular number is.

If your amazon ppc advertising programme has never had an outside pair of eyes on the bid-versus-CPC gap, this is the month to ask for one, whatever a court eventually decides.

Frequently asked questions#