New Jersey Attorney General Jennifer Davenport and the state Division of Consumer Affairs have joined the Federal Trade Commission and 21 other states in a lawsuit accusing Amazon of secretly manipulating its advertising auction system to overcharge hundreds of thousands of businesses by billions of dollars.
The lawsuit, filed Monday, alleges that the e-commerce giant systematically replaced the results of its advertised “second-price” auctions with hidden surcharges, a practice that affected approximately 1.2 million advertisers and generated more than $20 billion in additional revenue for the company.
“For years, Amazon has been misrepresenting how it sets the prices to advertise on the most coveted real estate on its website,” Davenport said in a statement. “It promised competitive auctions to set prices and then quietly replaced those results with inflated prices designed to pad its own profits.”
According to the complaint, Amazon told advertisers it ran “second-price” auctions, where the winning bidder pays one cent more than the second-highest bidder. But beginning in 2019, the company changed its auction rules without notice, adding an undisclosed surcharge that Amazon referred to internally as a “soft reserve price.”
The result, the complaint alleges, was that advertisers frequently paid their full winning bid — sometimes as often as 80% of the time — rather than the lower amount promised under the auction format.
Internal documents cited in the lawsuit show Amazon employees acknowledged the surcharges were hidden because revealing them would cause “irrevocable damage to advertiser trust” and a “downward spiral” of advertisers lowering their bids.
The complaint quotes from a 2024 discussion among senior executives, including the head of Amazon Ads and Amazon’s chief digital economist, who acknowledged that the company’s “clever non-transparent way to charge first price” had been an “incredibly effective way to drive revenue.”
Amazon disputed the allegations in a statement, saying the FTC’s case “fundamentally misunderstands how advertisers operate.”
“Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics,” the company said.
Amazon also said its advertising system does not simply award placements to the highest bidder. About 92% of ads are not shown to the highest bidder because the company considers relevance when deciding which ad to serve. Amazon said that approach saved advertisers more than $8 billion between 2021 and 2025.
But the FTC and state attorneys general argue that the pricing changes increased costs for sellers and ultimately pushed up prices for consumers. FTC Chairman Andrew Ferguson wrote on X that the higher ad charges affected the cost of essential products, including food and groceries.
“Honest auction markets depend on trust, fair competition, and transparent dealing,” said Christopher Peterson, acting director of the New Jersey Division of Consumer Affairs. “New Jersey businesses competing for space to advertise on Amazon have been systemically cheated. We are taking action to hold Amazon accountable and to protect the small and medium-sized businesses that power our economy.”
The complaint alleges the surcharges applied to advertisements for essentials including food, grocery and pharmacy products, which Davenport said “translate to higher prices for New Jersey consumers.”
“Today’s lawsuit shows that we are standing up for Main Street businesses and consumers over billionaires that use their dominance in the market to worsen the affordability crisis for everyone,” Davenport said.
According to the complaint, Amazon ramped up surcharges during high-volume shopping days such as Prime Day and Black Friday, and increased the percentage of advertisers who paid their full bid from between 30% and 40% in 2021 to approximately 80% in 2024.
The lawsuit accuses Amazon of violating the New Jersey Consumer Fraud Act’s prohibitions against deceptive, unconscionable and abusive commercial practices. The FTC brings its claims under Section 5(a) of the FTC Act, including misrepresentation, deceptive auction manipulation, concealment, unfair omissions and unfair billing practices.
The suit is the FTC’s latest major action involving Amazon. Last year, Amazon settled a separate case over its Prime enrollment and cancellation practices for $2.5 billion. In 2023, the company agreed to pay more than $30 million to resolve FTC allegations involving privacy practices related to Alexa and Ring. Amazon denied wrongdoing in both cases.
In addition to New Jersey, the attorneys general of Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington also joined the lawsuit.
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