Amazon Added Hidden Surcharges to Seller Ads, FTC and RI Allege
An updated federal complaint alleges Amazon added hidden surcharges to its ad auctions, up to 250% above auction results on major shopping days, according to the FTC. Rhode Island is one of the plaintiffs.
Rhode Island’s attorney general is suing under state consumer-protection law over ad costs the complaint says hit more than 500,000 small and medium-size businesses nationwide, and the complaint alleges part of those costs reach shoppers.
When a seller pays to put a product near the top of an Amazon search page, the company has long described the deal like this: advertisers bid, the highest bidder wins, and the winner pays just above the next-ranked bid. The industry calls that a second-price auction. It is also the promise at the heart of a federal lawsuit Rhode Island joined in August, and an updated complaint filed Oct. 28 lays out in more detail how the government says Amazon broke it.
The Federal Trade Commission and 22 states, Rhode Island among them, allege that starting in late 2018 and 2019, Amazon layered undisclosed “soft reserve” surcharges onto its ad auctions. Those surcharges, the complaint says, pushed what advertisers paid above what the auction itself produced, and Amazon concealed it. In a release Thursday, the FTC said newly unredacted portions of the complaint allege increases of “as much as 50%” above auction results on ordinary days and “as much as 250%” on major shopping days.
Those percentages are the FTC’s own summary of its allegations. The FTC headlined the release as an “Auction-Rigging Case.”
What changed in the filing
The original complaint went in on Aug. 31 in the U.S. District Court for the Western District of Washington. On Oct. 27, U.S. District Judge John H. Chun granted Amazon’s motion to seal “commercially sensitive information” and ordered the plaintiffs to file a redacted version within 14 days. The updated complaint came the next day.
So the document now public is partly unredacted, not wide open. Some figures are still blank, including in the complaint’s opening paragraph.
Rhode Island’s stake
Rhode Island is a named plaintiff, not an onlooker. Attorney General Peter F. Neronha brought a claim under the state’s Deceptive Trade Practices Act, and the complaint asks for a court order, civil penalties, restitution, disgorgement, fees and costs under that law.
In his Aug. 31 announcement, Neronha said the coalition alleges Amazon’s artificial bids cost businesses “tens of billions of dollars.” He argued the conduct pushes small businesses into higher ad costs, and that Amazon’s reach leaves sellers little choice about where to advertise. His release did not put a Rhode Island dollar figure on it.
The national numbers in the complaint are large. It says Amazon has about 1.2 million U.S. advertisers, including more than 500,000 small and medium-size businesses, and brings in more than $68 billion a year in advertising revenue. It alleges the surcharge scheme “has likely illegally extracted over 20 billion dollars.”
How the government says it worked
According to the complaint, Amazon has described its auctions as second-price since at least 2012. In late 2018, the FTC and states allege, it began overriding auction results with higher prices Amazon set itself. The complaint dates surcharges on Sponsored Brands ads to late 2018 and on Sponsored Products, the most lucrative of Amazon’s three ad types, to July 2019.
It also says Amazon weighed switching openly to a first-price auction, where winners pay their full bid, in January 2019 and rejected the idea because advertisers would lower their bids. A 2024 executive discussion, as quoted in the complaint and the Rhode Island release, described the approach as a clever, non-transparent way to charge first price.
One internal 2022 document cited in the complaint put the rate at which clicks were charged the advertiser’s own maximum bid at 60%, and said about 90% of clicks were priced either above the second-price result or at the maximum bid.
The most concrete example comes from Prime Day 2023. The complaint says a July 2023 change raised surcharge limits for the event’s second day. At least seven advertiser escalations followed, and three campaigns saw surcharge increases of more than 100%, the complaint says. An internal report, as described in the filing, said one food and beverage advertiser’s campaigns were being badly damaged.
When advertisers asked why costs jumped, the complaint alleges, Amazon’s public-relations and legal teams approved a reply blaming shopper and advertiser engagement, an explanation the complaint calls false. The FTC’s Thursday release says Amazon “falsely reassured” advertisers.
Where shoppers come in
The complaint alleges a “significant portion” of advertising costs are “ultimately passed through” to shoppers, and its consumer-injury section says consumers are suffering. It does not measure what any of that means for prices in Rhode Island.
Amazon has denied the allegations, saying the complaint cites no evidence of consumer price increases, that advertisers never pay more than their bid, and that its ranking saved advertisers more than $8 billion from 2021 to 2025.
What you can do
The updated, partly redacted complaint is posted by the FTC. Sellers or shoppers who want to flag a business practice can file at the FTC’s reporting site, which says reports go into a shared law enforcement database and that the agency does not resolve individual reports. Rhode Islanders can also use the “File a Consumer Complaint” form on the attorney general’s Consumer Protection page.
The case moves next on Amazon’s response. The court docket lists an Oct. 6 order setting a briefing schedule for motions to dismiss, and Judge Chun will decide them.
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