The Federal Trade Commission and 22 states allege Amazon used advertisers’ return on ad spend to calibrate hidden search-ad surcharges, raising some prices by as much as 250% above auction-calculated results during major shopping events. The alleged system let Amazon collect more revenue from advertising placements without additional competition for those placements.
Amazon disputes the allegations. The case concerns sponsored advertising on Amazon’s store, but it arrives as the company expands AI-managed campaigns that allocate budgets across sponsored search, display, online video and streaming TV. Amazon is asking advertisers to delegate more spending decisions to its software while regulators challenge how it priced existing advertising inventory.
ROAS Set the Toll
Amazon represented its sponsored advertising system as a generalized second-price auction. The winning advertiser paid enough to beat the next-ranked competitor rather than automatically paying its full bid.
The FTC’s updated complaint alleges Amazon calculated that auction price and then applied a separate “soft reserve” that could increase the final cost per click. The charge remained capped by the advertiser’s maximum bid.
The complaint also describes how Amazon allegedly determined what advertisers would tolerate.
A 2020 internal memorandum cited in the filing said advertisers responded more directly to changes in spending and ROAS than to being charged their full bids. Amazon’s Sponsored Products auction team proposed using advertisers’ ROAS responses as the “main signal to tune our pricing controls.”
The team subsequently grouped advertisers using factors associated with ROAS and imposed reserve-pricing constraints based on a predefined fraction of their returns, according to the complaint.
Higher campaign performance could therefore give Amazon room to increase prices while keeping returns within ranges advertisers might accept.
By 2024, an internal Sponsored Products operating plan recorded a first-price rate of 79.1%. The plan acknowledged that Amazon was approaching the maximum amount winning advertisers had bid and that additional cost-per-click growth would be limited unless advertisers increased those bids.
The FTC alleges Amazon restricted the auction data advertisers needed to recognize the pricing adjustments. Advertisers could evaluate what they paid and what sales followed, but couldn’t independently reconstruct the underlying auction price.
Prime Day, Higher Prices
The alleged surcharges became more aggressive during shopping events when stronger purchase activity could support higher advertising returns.
The FTC says Amazon raised average advertiser cost per click by 20% during the 2021 holiday season, with some advertisers experiencing increases above 200%.
During the 2022 holiday season, the agency alleges higher surcharges generated an additional $87 million in worldwide revenue.
The complaint describes Amazon introducing those increases gradually to prevent sudden changes that might attract advertiser attention.
Prime Day 2023 produced complaints from major advertisers. One large food and beverage customer allegedly experienced surcharge increases exceeding 100%. An internal Amazon assessment acknowledged that rising costs and deteriorating returns were “destroying campaign performance.”
The complaint also cites a 2023 exchange in which Amazon Ads leadership discussed generating at least another $40 million through reserve prices to help meet corporate revenue targets.
When advertisers questioned higher costs, Amazon representatives allegedly attributed the increases to stronger competition.
That explanation affected the information advertisers used to manage their bids. A merchant facing additional competing bids might increase its maximum bid to defend placement share. A merchant facing a higher seller-imposed reserve could lower its bid to limit how much revenue the auction operator collected.
The FTC argues Amazon concealed the information needed to make that choice.
The Relevance Defense
Amazon rejects the FTC’s characterization of its auction practices and maintains that its system improves advertiser performance.
In its response to the lawsuit, Amazon says it ranks ads using expected relevance and performance alongside bids. Approximately 92% of Sponsored Products ads selected in 2024 weren’t the highest bid.
Amazon also says average winning bids fell 50% between 2019 and 2025. Its inflation-adjusted average cost per click remained flat from 2019 through 2024, while conversion rates increased 24% between 2021 and 2025.
The company estimates that prioritizing relevance saved advertisers more than $8 billion between 2021 and 2025.
Amazon acknowledges using reserve prices but says they reflect the market value of advertising placements. It maintains that advertisers never pay more than their authorized bids and that its pricing practices were adequately explained. The company has also updated its advertising documentation to explain reserve pricing.
Amazon’s performance figures support its argument that advertisers received value from its system. They don’t independently establish what advertisers would have paid without the disputed reserves.
A campaign can deliver stronger conversions while still paying more for individual clicks than competing bids would otherwise require. Lower average winning bids also don’t establish whether the final charges reflected the auction rules Amazon described to advertisers.
The legal dispute concerns Amazon’s pricing conduct, disclosures and representations to advertising customers. No court has determined whether the company violated the law.
AI Gets the Checkbook
Amazon generated $19.64 billion in advertising revenue during the third quarter of 2026, an 11% year-over-year increase.
Its new Full-Funnel Campaigns product expands the formats available to retail advertisers within a single AI-managed budget. Merchants provide products, creative, spending limits and optional ROAS thresholds while Amazon allocates money across sponsored ads, display, online video and streaming TV.
The system puts Prime Video in competition with sponsored products for the same advertising budgets.
A streaming TV impression can introduce a product to a potential customer, while a sponsored search placement can capture someone already shopping for it. Amazon’s AI evaluates those formats using retail purchase data and campaign measurement.
Amazon says early Full-Funnel Campaigns advertisers achieved 67% higher long-term ROAS than comparable formats configured independently and a 29% lower cost per new-to-brand purchase.
Those figures come from Amazon’s internal beta comparisons. Its long-term sales measurement also includes estimates of customer spending over the following 12 months, rather than relying exclusively on completed transactions.
Amazon offers the orchestration without an additional AI management fee. Advertisers still pay for the underlying media on a cost-per-click or cost-per-thousand-impressions basis, depending on the placement.
That arrangement concentrates several decisions within Amazon’s advertising system.
Amazon determines how spending moves between formats, operates auctions for its own inventory and supplies much of the performance measurement used to evaluate campaign results.
A campaign can meet its ROAS target while individual placements cost more than competing bids would otherwise require. Attributed sales can also include purchases that would have occurred without advertising exposure.
Neither outcome necessarily becomes visible through a blended campaign return.
The FTC hasn’t alleged that Amazon applied the disputed search-ad surcharges to Prime Video or other CTV inventory. The lawsuit concerns pricing practices in Amazon’s store advertising business.
The broader commercial question is whether advertisers will demand more independent verification as Amazon expands automated buying across formats, including streaming TV.
The Streaming Wars Take
Independent pricing and performance verification become more valuable as advertisers delegate additional budget decisions to Amazon’s AI.
Advertisers evaluating Full-Funnel Campaigns have a stronger incentive to demand clearer reserve-price disclosures, placement-level costs, controls over budget allocation and independent tests of incremental sales before allowing automation to determine how much spending reaches streaming TV.
Those requirements create an opportunity for rival CTV sellers and independent measurement providers.
Amazon’s ability to connect advertising exposure to retail transactions remains a substantial competitive advantage. Rival TV sellers can compete by demonstrating incremental sales across retailers and offering buying arrangements where the inventory seller doesn’t control every part of the pricing and measurement process.
That approach requires reliable transaction data, identity matching and additional measurement costs. Independent testing can also expose weaker campaign performance.
The FTC’s allegations give advertisers a financial reason to consider those costs.
For Prime Video, Amazon’s existing merchant relationships remain an efficient source of potential TV advertising demand. Full-Funnel Campaigns can introduce those merchants to streaming inventory without requiring separate buying systems or measurement relationships.
The litigation increases scrutiny of the prices and performance figures used to support those automated spending decisions.
A blended ROAS target can establish whether a campaign met its reported sales objective. Determining whether Amazon’s AI allocated the budget efficiently requires knowing what each placement cost, how that price was determined and how much additional business the advertising actually produced.
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