Amazon Fires Back After FTC Claims Its Hidden Reserve Price Auctions Inflate Ad Costs

The Allegations

The FTC alleges that although Amazon claims it was running advertising auctions under the GSP model—where the highest-priced bidder pays only one-cent more than the next highest bidder for a sponsored ad—Amazon was actually charging advertisers their full winning bid close to 80% of the time. That effectively turned Amazon’s “second price auction” into a first-priced one, which matters because advertisers typically bid higher under a GSP system, knowing they won’t pay their full bid.

The FTC also claims Amazon boosted ad revenue by applying a “hidden surcharge,” internally referred to as a “soft reserve price.” This effectively inserted what the agency described as a “proxy second price” bidder to raise the final price charged to advertisers.

According to the complaint, Amazon and senior executives took “active steps” to conceal its surcharge advertising scheme from advertisers because revealing it would result in “irrevocable damage to advertiser trust” and a “downward spiral” of advertisers lowering their bids—causing dramatic losses in ad revenue.

“When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering,” said FTC Chairman Andrew N. Ferguson in a statement. “Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers. The FTC under President Trump won’t allow this deception to continue.”

Amazon Strongly Disputes All Charges

In a detailed 3,000-word response, Amazon forcefully rejects the FTC’s allegations that it misled advertisers and disputes that consumers have been harmed by higher prices, noting that the complaint shows no evidence of price increases and mentions consumers only a “handful” of times in its 150-page filing.

After outlining the origins of its GSP advertising model, Amazon says the system has evolved to weigh not just the highest bid but also the relevancy of placement when determining the price advertisers pay. To do this, it established a two-pronged ad pricing system—a soft reserve price and a hard reserve price—designed to reflect the true value of each placement.

In essence, if a winning bid is greater than both the hard and soft reserve price, then the advertiser pays the soft reserve price, which is lower than their bid. If the winning advertiser’s bid exceeds only the hard reserve but doesn’t meet the soft reserve, then the advertiser pays their original bid.

“In no scenario does an advertiser pay more than their bid,” Amazon stated. Based on this model, Amazon claims that in 2024, approximately 92% of selected Sponsored Products ads were not the highest bid, “often by a wide margin.”

Amazon argues the system has saved advertisers an estimated $8 billion in total from 2021-2025, and it estimates the reserve price model will deliver 58% higher sales for advertisers and at least 46% better return on ad spend in 2026 due to its focus on relevancy. And it claims consumers benefit as well: shoppers are 58% more likely to see ads for products they would be interested in.

Amazon also pushes back on the potentially incriminating statements the FTC found in the over 1.5 million internal documents it reviewed, essentially cherry-picking informal or exploratory statements to suggest “there was a concerted company-wide effort to deceive advertisers—this is patently false.” Amazon explains its corporate writing culture often reflects people expressing thoughts for brainstorming, testing hypotheses and early-stage ideas that evolve after further discussion and review.

Amazon concludes that it has been transparent with the FTC about its data, the auction process and advertiser behavior. However, it argues that the agency has shown “little interest in engaging with the facts and appear more focused on trying to secure a substantial monetary victory for themselves and states they can lure with this possibility.”

Believing it has the stronger case—”providing sellers and vendors the ability to promote their products in the Store, highly relevant advertising for shoppers, and stronger sales and performance for advertisers”—Amazon states, “We look forward to making our case in court.”

What Comes Next

This lawsuit, which is supported by attorneys general from both sides of the political aisle, seeks a permanent injunction to halt Amazon’s advertising practices determined to be unfair, as well as pay unspecified damages.

Admittedly, it is difficult for most people, including government officials, to understand the mechanics of Amazon’s reserve price system. But then, in the real world, people don’t need to understand it because the entire auction bidding and acceptance process is handled by machines.

“Ad buyers today use highly sophisticated, automated, programmatic advertising platforms that have a deep understanding of how auctions work across different providers, enable bid experimentation and are used to maximize results and return on investment,” Amazon states.

Yet the reserve pricing system, which Amazon claims is common across the industry, is far less transparent than the simplified GSP auction system. Amazon admits as much:

“Even if an advertiser wanted to factor reserve prices into their strategy, they couldn’t easily do this because reserves are determined in real time and aren’t predictable in advance by anyone, including Amazon or the advertiser.”

In other words, advertisers know what they pay for each ad, but they don’t know how Amazon’s reserve price algorithm determines that price. This point will be central to the FTC’s case and one that Amazon’s army of lawyers will have to explain and defend.

Google Rulings Set The Precedent

Recent rulings in the DOJ’s multi-pronged Google AdTech antitrust case appear to favor the FTC case against Amazon. In April, U.S. District Judge Leonie Brinkema ruled that Google has “willfully engaged in a series of anticompetitive acts” in order to maintain a monopoly in the publishing ad server and ad exchange markets.

That followed an earlier ruling by Judge Amit Mehta that found the company violated antitrust laws to maintain its search engine monopoly. However, Google just got a partial reprieve this week after Judge Brinkema ruled it didn’t have to divest its AdX advertising tech business.

Nonetheless, the Google rulings support the FTC’s foundational premise that dominant digital platforms can manipulate ad auctions to inflate ad prices.

Observing that Amazon’s roughly $70 billion ad business is the third largest after Google and Meta, Tommaso Bondi, assistant professor of marketing at Cornell Tech and the Cornell SC Johnson College of Business whose research focuses on the economics of digital platforms, puts it plainly:

“The FTC’s allegations cut at the heart of how that money is made. In a second-price auction, winners pay just enough to beat the runner-up; secretly raising the price floor works exactly like planting a fake bidder in the room, inflating prices without any real competition behind them.

“Because these auctions are black boxes, advertisers had little ability to detect it – trust is the whole product. Essentially, bidders were bidding as if they were in a second price auction (that is, they were bidding truthfully), but the auction closely resembled a first price one. Advertisers likely didn’t bear this cost alone: for most sellers, advertising is now a cost of doing business on Amazon, and inflated ad costs ultimately show up in the prices consumers pay.”

See Also:

ForbesFTC Files Lawsuit Against Amazon Alleging Manipulative Ad PricesBy Antonio Pequeño IVForbesFeds File Landmark Suit Against Amazon For Protecting Online Retail MonopolyBy Ty Roush