1 SEP 2026 — The FTC and 22 states have sued Amazon, alleging it told more than 500,000 small businesses their ads ran in a second-price auction. The complaint says a concealed reserve and an internal construct described as an invented auction participant turned it into something else. The harm alleged is not that prices rose. It is that advertisers were taught to bid in a way that only made sense under the rules they were given, not the ones they got.
What is alleged
The complaint, filed on Monday, describes a scheme running since 2019. The complaint says Amazon told advertisers it used a second-price auction, in which the winner pays one cent more than the runner-up bid. It alleges Amazon then added a hidden soft reserve price and deployed what internal documents called an invented auction participant, and that the combination converted the auction into a first-price one roughly 80 per cent of the time for Sponsored Products.
Sponsored Products, Sponsored Brands and display ads are named. The FTC says more than a million brands and sellers were affected and that the practice may have generated tens of billions of dollars in additional revenue. Amazon's advertising revenue last year was US$68bn. Amazon calls the suit misguided and says the complaint fundamentally misunderstands how advertisers operate, maintaining that advertisers are properly informed about pricing.
Why the auction type is the whole case
The distinction sounds technical, and it determines what a rational advertiser should do.
In a second-price auction the winner pays the runner-up's bid plus a small increment. The established consequence, and the reason the format became standard in advertising, is that bidding your true maximum value is the optimal strategy. You cannot be punished for bidding high, because your bid does not set the price you pay. Advertisers can therefore be told to bid honestly, and the auction is easy to explain.
In a first-price auction the winner pays exactly what they bid. Bidding your true value is now the worst thing you can do, because you capture none of the surplus. The correct strategy is to shade your bid downwards, and doing that well requires guessing what everyone else will bid.
An advertiser told they are in a second-price auction, who then follows the standard advice for that format, systematically overpays if the auction is really first-price. That is the mechanism the complaint describes, and it is a more specific claim than prices were too high.
The industry moved to first-price openly
This is the context that makes the alleged concealment the issue rather than the auction design.
Advertising exchanges shifted from second-price to first-price auctions around 2019, and the largest did so publicly, with notice periods and documentation, precisely because the change required advertisers to rewrite their bidding strategies. First-price auctions are not improper. They are now common.
The complaint does not say Amazon ran the wrong kind of auction. It says Amazon ran one kind while describing another, so advertisers optimised for rules that were not in force. That is what makes the allegation serious. If proven, the wrong is the description rather than the design.
The phantom bidder is the sharpest allegation
The sharpest allegation in the complaint is the invented auction participant.
A reserve price is ordinary and mostly defensible: a seller setting a minimum below which it will not sell inventory is normal commercial behaviour, and the criticism attaches to concealing it rather than having it. A fabricated competing bidder is not the same as a reserve price. Its only function is to raise what the winner pays while appearing to be genuine competition.
The phrase is attributed to Amazon's own internal documents, which is what gives it force. Internal language is often the most damaging evidence in cases of this shape, because it describes what people thought they were doing at the time, not how it was characterised later.
The tens of billions figure is an estimate
The FTC says the scheme may have generated tens of billions in additional revenue, and that number will travel further than any other in the filing.
It is a regulator's estimate in a complaint, calculated from a counterfactual — what advertisers would have paid under the auction they were told they were in — and counterfactuals of that kind are contested in every case where they appear. Amazon will produce a different one. The eventual figure, if any, will emerge from expert evidence and will very likely be smaller.
The FTC's use of may is deliberate and should survive into any repetition of the claim.
Why sellers in this region should read the mechanism
Amazon advertising is bought by exporters across Southeast Asia selling into American and European marketplaces, and they are inside the affected population if the allegations hold.
The practical point is not about joining any action, which is a matter for lawyers in the relevant jurisdiction. It is about how advertising budgets were set. A seller in Ho Chi Minh City or Shenzhen who was advised to bid their true value, because the platform said the auction rewarded it, made spending decisions on that basis. If the format was different, the historical cost-per-click data those decisions were built on describes a market that did not work the way it was explained.
The broader lesson generalises past this case. Auction mechanics on any advertising platform are disclosed by the platform, and are almost never independently verifiable by the buyer. An advertiser cannot see the other bids, confirm the reserve, or test whether the stated rules are the operating rules. That information asymmetry is structural to every ad platform, not only this one.
