Transparency in the bidding process is a theme that cuts across all digital advertising auction disputes.

For years, Amazon told marketplace advertisers that winning ad prices would be set by competition. Its auctions, Amazon said, used a generalized second-price model: the winner would pay only what was needed to beat the next-highest bidder, often described as “one cent more than the second-place bid.” According to a new lawsuit by the Federal Trade Commission and 22 states, that is not what happened. 

The complaint alleges that Amazon secretly replaced auction results with higher prices it generated internally, collecting billions from sellers and brands that believed they were participating in a traditional second-price auction. Amazon strongly disputes the allegations and says advertisers received more value from its systems over time. 

The Alleged Shift from Competition to Company-Controlled Pricing 

The FTC says Amazon repeatedly assured advertisers that auction winners would pay only enough to beat the next-highest bidder. Its training materials described the price as “slightly higher than the second highest CPC bid” or “one penny more than the next highest bid.” 

The government alleges that Amazon quietly moved away from that model beginning in 2018 and 2019. One internal document quoted in the complaint allegedly acknowledged that, in Amazon’s auctions, “the second price isn’t set by an actual bidder, but rather by a proxy 2nd price that we calculate.” 

The FTC also alleges that Amazon internally described having “inserted” a bid into its auctions to raise prices and “adjust” them “beyond what would be organically achieved through advertiser competition.” 

An Amazon scientist allegedly described the system as using “an invented auction participant representing how much Amazon thinks that particular ad slot is worth.” 

That is the core of the government’s case: Amazon promised competition-based pricing, then substituted its own pricing judgment after seeing the actual bids. 

Internal Memos and Disclosure Risk 

The complaint also quotes internal discussions in which Amazon employees allegedly recognized that advertisers bid differently because they trusted the second-price model. One document said, “Many advertisers set a default high bid because they trust our Generalized Second Price Auction process.” Another said, “Many advertisers set a relatively high bid … because they trust Amazon is not running a first price auction.” 

Some employees discussed disclosure risk, the government alleges. One internal document warned, “All of our proposals are about how we can tune parameters to increase prices and move away from a GSP while hoping that advertisers don’t notice and decrease bids or ad spend.” 

A Google economist quoted in the complaint allegedly acknowledged that “[i]f we say (or advertisers think) we are running a second price auction, but we aren’t and what we are doing charges the advertisers more, that’s a reputational risk when it eventually becomes clear.” 

The FTC says those statements show Amazon understood both the importance of auction rules and the risk that advertisers would react negatively if they learned how prices were actually set. 

The “Pay More for the Same Advertising” Theory 

The complaint frames the alleged surcharges as revenue Amazon collected without providing more advertising value. An internal memorandum cited by the FTC said, “Reserve prices are good for Amazon because they don’t change the allocation and advertisers must pay more for the same advertising. Obviously, the benefit to Amazon comes at the cost of advertisers.” 

Amazon is expected to argue that its advertising system improved relevance and performance. The FTC’s theory is narrower: even if placements improved, advertisers were entitled to know how prices were set and whether they were receiving the auction they were promised. 

Amazon’s Response 

Amazon calls the lawsuit “misguided” and rejects the FTC’s account of its advertising systems and their effects. The company says the government has not identified consumer harm: “The FTC wants the public to believe this case is about higher prices for consumers. It is not,” Amazon says. “The FTC’s own complaint cites no evidence of consumer price increases.” 

Amazon also disputes advertiser injury. The company says that from 2019 through 2024 “the average cost-per-click for Amazon’s Sponsored Products search ads remained flat adjusted for inflation, while conversion rates grew 24% from 2021 to 2025.” 

“Advertisers paid the same and got more as we meaningfully improved ad relevancy and therefore performance,” the company says. 

Amazon says results matter more than auction terminology. “Advertisers adjust bids based on real-world performance,” the company says, “not descriptions of auction mechanics.” 

Amazon estimates that advertisers saved more than $8 billion between 2021 and 2025 because it emphasized relevance over bid size, and says shoppers are more likely to see ads they want. 

The Broader Competition Question 

The case involves more than auction mechanics. Amazon’s advertising business is now large enough to be compared with the dominant digital advertising businesses operated by Google and Meta. 

Source note: Figures are drawn from Alphabet’s 2025 annual report and 2025 results release, Meta’s 2025 full-year results release, and Amazon’s 2025 reporting on advertising services revenue. 

The FTC may or may not prove consumer harm, and Amazon may persuade the court that advertisers received greater value. But the complaint presents a basic transparency question: whether a platform can invite advertisers to bid under one set of auction expectations while using a different pricing system behind the scenes. 

Advertising Auctions Have Long Drawn Legal Scrutiny 

The FTC’s case against Amazon is part of a broader legal history. For more than a decade, agencies, advertisers, publishers, and private litigants have challenged digital ad auctions over transparency, bidding mechanics, reserve pricing, self-preferencing, disclosures, and the role platform operators play in setting outcomes. As digital advertising has grown into one of the world’s largest commercial markets, courts and regulators have repeatedly examined who controls auction results and how prices are set. 

DOJ v. Google. A major line of litigation has involved Google’s advertising technology businesses. The U.S. Department of Justice and several state attorneys general challenged Google’s control over advertiser buying tools, ad exchanges, and publisher ad servers, alleging that Google used its market infrastructure to disadvantage rivals and influence auction outcomes. Proposed remedies included divestiture of Google’s AdX exchange and portions of its publisher ad server business, as well as greater transparency and interoperability with competing systems. The company ultimately escaped structural remedies, however, and the case is on appeal. 

Texas v. Google. The Texas-led antitrust case against Google put auction conduct even more squarely in view. Among other allegations, the complaint challenged Google’s use of auction data and mechanics in ways that allegedly favored its own systems. Google denied wrongdoing, but the case helped place auction design and operation at the center of antitrust scrutiny. That case remains pending after the court rejected Google’s standing challenge in 2025. The case includes allegations concerning Google’s ad-exchange auctions and the operation of “Project Bernanke” in which, the suit alleges, Google used auction data and internally pooled funds to influence bidding outcomes, much as a central bank intervenes in markets. Google denies this. 

Advertisers v. Google. Private litigation has raised related transparency concerns. Advertisers have sued Google over AdWords/Google Ads pricing, targeting, billing practices, Smart Pricing discounts, and representations about how advertising charges were calculated. Those cases generally involved contract, consumer protection, or unfair competition theories rather than traditional antitrust claims, but they reflected the same recurring concern: advertisers often lack visibility into the systems that determine what they pay. The litigation resulted in a $100 million settlement that received final approval in 2025. The case involved allegations concerning location targeting and Smart Pricing, 

Meta/Facebook. The social media giant has also faced disputes involving advertising disclosures, performance metrics, measurement practices, and auction-related systems. Those matters generally focused less on how auction prices were determined and more on whether advertisers received accurate and sufficient information about platform operations and advertising performance. Even so, they highlight a recurring theme in digital advertising litigation: transparency.

The Transparency Problem 

Across platforms and technologies, competition law enforcers in the United States and abroad, advertisers, and courts have repeatedly examined whether advertisers understood how ad systems worked and whether the information they received was complete and accurate. 

Advertising auctions have drawn government investigations and private lawsuits because digital platforms often serve as auctioneer, market operator, rulemaker, and participant at once. That structure has drawn scrutiny on both sides of the Atlantic and beyond, raising questions about transparency, incentives, and whether advertisers receive the competitive process they were promised.

Against that backdrop, the FTC’s Amazon case fits within a larger history of challenges to digital advertising markets, even if the claims are different from case to case. 

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