The Amazon FTC lawsuit filed on August 31 turns on one phrase buried in an internal company document: an “invented auction participant” — a bidder who didn’t actually exist, used internally to push ad prices higher than real competition would have produced. It’s the clearest explanation yet of what the FTC and 22 state attorneys general say Amazon was doing behind the scenes of its advertising business for the past seven years.
Here’s what’s alleged. Amazon Sponsored Products ads have long run on something called a second-price auction (sometimes called GSP): the highest bidder wins, but only pays one cent more than the second-highest bid — not their own full bid. That structure is supposed to encourage advertisers to bid high, since they know they’ll rarely pay their maximum. Amazon told over a million advertisers this was how it worked. But starting in 2019, the FTC says Amazon quietly added a second, undisclosed threshold internally called a “soft reserve price.” If a winning bid cleared the minimum required to enter the auction but didn’t clear this second, hidden bar, the advertiser paid their own full bid — not the discounted second-price amount. According to the FTC’s complaint, that happened in roughly 80% of Sponsored Products auctions by 2024. In practice, four out of five advertisers who thought they were getting a competitive discount were instead paying exactly what they’d budgeted as their absolute ceiling.
Amazon disputes all of it, calling the lawsuit “misguided” and arguing that soft reserve prices are a normal industry practice it has since explained clearly in its help documentation. The company’s ad business generated more than $68 billion last year, and even a partial win for the FTC likely wouldn’t force Amazon to abandon reserve pricing altogether — auction mechanics can usually be adjusted without changing the underlying economics of a high-margin business.
Amazon’s ad unit isn’t the only tech giant in regulators’ crosshairs this year — see how a similarly sprawling legal fight played out for Meta. For now, the case sits at the discovery stage, and there’s a real difference between a filed complaint and a final judgment. What’s worth watching isn’t whether Amazon eventually settles, but whether “reserve pricing” language starts showing up in how other platforms — Google, Walmart Connect, TikTok — describe their own ad auctions in the months ahead.
Not advice. Just how I see it.