New Jersey Attorney General Jennifer Davenport and the Division of Consumer Affairs joined the Federal Trade Commission and 21 other states in suing Amazon over allegations that the company manipulated advertising auctions and charged businesses billions of dollars in hidden fees.
The lawsuit claims Amazon secretly overcharged advertisers for more than seven years, including more than 500,000 small and mid-sized businesses that use the company’s platform to promote their products.
According to the complaint, Amazon told advertisers that it used “second price” auctions, in which the winning bidder pays only slightly more than the next-highest bid. But the states and the FTC allege that Amazon frequently charged advertisers their full winning bids, effectively converting the system into a first-price auction.
The complaint alleges that Amazon began adding an undisclosed “soft reserve price” to its auctions in 2019. The surcharge caused advertisers to pay substantially more than the amount generated by the purportedly competitive auction.
Amazon’s advertising products include Sponsored Product, Sponsored Brand, and Display ads that appear alongside search results on its online store. The complaint alleges that Amazon’s system applied higher surcharges on high-volume shopping days, including Prime Day and Black Friday.
For Sponsored Products, advertisers paid their full bid approximately 30% to 40% of the time in 2021, about 70% of the time in 2022, and roughly 80% of the time in 2024, according to the lawsuit.
The complaint cites internal Amazon documents and conversations in which company employees allegedly acknowledged that the pricing system included a hidden surcharge and an “invented auction participant” designed to increase prices. One internal discussion described the company’s process as a “clever non-transparent way to charge first price.”
The lawsuit also alleges that Amazon misled advertisers who asked whether the company had changed its auction system. Internal documents reportedly warned that disclosure could cause advertisers to lower their bids and damage Amazon’s revenue.
“For years, Amazon has been misrepresenting how it sets the prices to advertise on the most coveted real estate on its website,” Davenport said.
She accused the company of worsening costs for businesses and consumers, including through advertising for food, grocery and pharmacy products.
DCA Acting Director Christopher Peterson said New Jersey businesses had been “systemically cheated” and that the state would seek to protect small and mid-sized companies.
New Jersey alleges violations of the Consumer Fraud Act. The FTC is pursuing claims under the FTC Act involving misrepresentation, auction manipulation, concealment, and unfair billing.
The coalition includes attorneys general from states including New York, Pennsylvania, California, Florida, Illinois, and Washington.