New Jersey joins lawsuit accusing Amazon of rigging online advertising auctions

Amazon allegedly used hidden surcharges to collect more than $20 billion from advertisers.

New Jersey has joined the Federal Trade Commission and 21 other states in a lawsuit accusing Amazon of secretly manipulating its online advertising auctions and collecting more than $20 billion in improper charges from businesses.

The 181-page complaint, filed Monday in federal court in Washington state, alleges that Amazon misled about 1.2 million advertising customers, including more than 500,000 small and midsize businesses.

Amazon told businesses that advertising prices were determined through competitive auctions. In reality, the lawsuit alleges, the company secretly overrode the auction results and imposed higher prices to increase its revenue.

“For years, Amazon has been misrepresenting how it sets the prices to advertise on the most coveted real estate on its website,” New Jersey Attorney General Jennifer Davenport said in a statement.

Davenport said businesses paid inflated prices to advertise groceries and other necessities. Those additional expenses were then passed on to shoppers, worsening New Jersey’s affordability crisis, she said.

Amazon has denied the allegations.

How Amazon’s advertising auctions work

Businesses bid to place advertisements alongside the results shoppers see when they search for products on Amazon. The lawsuit covers three types of advertisements: sponsored products, sponsored brands and display ads.

Amazon told advertisers it used what is known as a second-price auction. Under that system, the winning advertiser does not necessarily pay its full bid. Instead, it pays only slightly more than the amount needed to beat the next-highest-ranked advertiser.

For example, Amazon told advertisers that a winning bidder would generally pay one cent more than the next-highest bid.

That distinction matters because advertisers participating in second-price auctions may submit higher bids knowing they will be charged only what is necessary to win. In a first-price auction, the winner pays its full bid and will bid more cautiously to avoid overpaying.

The lawsuit alleges that Amazon developed a way to override those auction results in late 2018 and began using it in 2019 without notifying advertisers.

After running the auction and calculating the price, Amazon allegedly substituted a higher amount known internally as a “soft reserve” price. The additional amount was described in company documents as a surcharge, according to the complaint.

An Amazon executive described the resulting price internally as a “proxy 2nd price that we calculate,” rather than a price set by an actual competing bidder. Another company document referred to an “invented auction participant” used to raise prices.

Prosecutors characterize the practice as creating sham bids designed to make advertisers pay more.

The complaint alleges that Amazon frequently charged more than the competitive auction would have produced.

For sponsored products advertisements, the share of auctions in which businesses paid their full bids allegedly increased from between 30% and 40% in 2021 to 70% in 2022 and about 80% in 2024.

Amazon allegedly concealed the surcharges

The lawsuit alleges that Amazon concealed the pricing system because the company knew advertisers would lower their bids if they understood how prices were actually determined.

Amazon allegedly limited the information available to advertisers, provided only aggregated pricing data, and gradually increased the surcharges to make them harder to detect. The company also imposed larger increases during major shopping periods such as Prime Day and Black Friday, according to the complaint.

One internal document acknowledged that Amazon’s auction pricing had “a surcharge hidden in it,” the lawsuit alleges.

Amazon employees also allegedly warned executives that disclosing the system could cause “irrevocable damage to advertiser trust” and lead businesses to reduce their bids and advertising spending.

The lawsuit claims Amazon continued telling businesses that it used second-price auctions even as the company increasingly charged advertisers their full bid amounts.

Amazon says advertisers were not harmed

Amazon published a response to the lawsuit on Monday claiming that businesses adjust their bids based on how well advertisements perform, not on simplified descriptions of the auction process. The company also said reserve prices are common in the digital advertising industry.

“The FTC’s claim fundamentally misunderstands how advertisers operate,” the company said in a statement.

According to Amazon, the average cost per click for sponsored products advertisements remained flat after accounting for inflation from 2019 through 2024, while the rate at which shoppers bought advertised products increased.

The company estimated that emphasizing an advertisement’s relevance to shoppers saved advertisers more than $8 billion between 2021 and 2025. Amazon also said average winning bids declined by 50% between 2019 and 2025.

Amazon claimed that some older training materials contained simplified descriptions of its auctions, but said those materials reached relatively few advertisers and were updated or removed.

The company also rejected the allegation that its practices raised consumer prices, arguing that the complaint did not provide data showing that advertising expenses were passed on to shoppers.

What the lawsuit is seeking

New Jersey alleges Amazon violated the state Consumer Fraud Act by engaging in deceptive and unconscionable business practices and knowingly concealing important information from advertisers.

The lawsuit asks the court to stop Amazon from continuing the alleged practices, order refunds or restitution for advertising customers who allegedly overpaid, and require the company to pay civil penalties and litigation costs to the participating states.

On Aug. 4, Davenport filed a separate antitrust lawsuit in federal court in New Jersey accusing Amazon of using its dominant position in the delivery labor market to suppress wages and worsen working conditions for thousands of New Jersey drivers. The lawsuit alleges the company discouraged union organizing, prevented businesses in its Delivery Service Partner network from hiring one another’s drivers, and limited competition. It is the first lawsuit brought by a state challenging this type of buyer dominance that is often referred to as “monopsony power.”