The Federal Trade Commission (FTC), joined by 22 states, has filed a lawsuit against Amazon, alleging that the company secretly imposed a “surcharge” on advertisers through its online ad auctions for over seven years. The complaint asserts that this practice affected more than 1 million brands and sellers, potentially generating tens of billions of dollars in additional revenue for Amazon. The lawsuit specifically targets Amazon’s Sponsored Products ads, Sponsored Brands ads, and Display ads, which run alongside search results on the platform.

According to the FTC, Amazon misled more than 500,000 small and medium-sized businesses by claiming to operate a “second-price” auction, where the winning advertiser would pay just one cent more than the next-highest bid. However, the complaint alleges that starting in 2019, Amazon implemented a hidden “soft reserve price” without informing advertisers. This change involved using an “invented auction participant” — essentially a fake bidder — to artificially inflate prices beyond what true competition would have dictated. As a result, the FTC claims that Amazon charged advertisers their full winning bid close to 80% of the time, effectively converting the advertised second-price auction into a first-price one. Amazon has described the lawsuit as “misguided,” arguing that the FTC misunderstands how advertisers operate and asserting that its auction system is transparent and properly communicated to advertisers. Source

This is a summary. Read the original at techcrunch.com.