The FTC's Amazon Ad Auction Lawsuit: How a Soft Reserve Price Works and How to Audit Your Bids

If you buy Sponsored Products ads, you have probably set a maximum bid well above what you expect to pay, trusting the auction to charge only enough to beat the next ad. On August 31, 2026, the US Federal Trade Commission and 22 state attorneys general sued Amazon, alleging that trust was misplaced. Amazon disputes the case and nothing has been tested in court, but the mechanism applies to any auction whose pricing you cannot see.

What the FTC and 22 states allege

The complaint, filed in the US District Court for the Western District of Washington (case 2:26-cv-03097), alleges that Amazon added an undisclosed surcharge to its ad auctions that it called internally a "soft reserve price". According to the FTC, Amazon's website, training videos and sales presentations described "second price" auctions in which the winner pays "one cent more than the next highest bidder". The complaint covers Sponsored Products, Sponsored Brands and Sponsored Display.

The FTC says the practice began in 2019 and affected more than one million advertising customers, including more than 500,000 small and medium-sized businesses, and likely extracted "tens of billions of dollars". Its central statistic: the share of the time Sponsored Products advertisers paid their full bid rose from between 30% and 40% in 2021 to 70% in 2022 and approximately 80% in 2024. The Commission voted 2-0 to file; the plaintiffs seek an injunction and monetary relief.

How a soft reserve turns a second-price auction into a first-price one

In a generalized second-price auction, the long-standing format in search advertising, ads are ranked on bid and relevance and the winner pays the minimum needed to beat the next-ranked ad. In a first-price auction, the winner pays its bid. The FTC's release explains why that matters. Under first-price rules, bidders in repeated auctions often trim bids toward the lowest winning amount, a practice called bid shading. Under second-price rules they can safely bid close to what the click is worth to them.

A conventional reserve price is a floor set before the auction. Amazon's statement describes two kinds. A "hard reserve" is the minimum a bid must pass to enter. A soft reserve is different: if the winning bid clears it, the winner pays the soft reserve; if the winning bid falls short, Amazon still awards the placement and the advertiser pays its own bid. Set the soft reserve above most winning bids and most winners pay their bid. That, in essence, is the FTC's allegation: second-price language, increasingly first-price charges.

Amazon's response

Amazon calls the lawsuit "misguided" and says it looks forward to making its case in court. It does not deny using soft reserves, describing them as "a real-time minimum value that seeks to better reflect what each placement is actually worth", and says reserves are common across the industry. It says approximately 92% of selected Sponsored Products ads in 2024 were not the highest bid, and that average Sponsored Products search CPC stayed flat, adjusted for inflation, from 2019 through 2024. It estimates, assuming bids held constant, that advertisers saved over $8 billion from 2021 to 2025 because its auction weighs relevance rather than bid alone. "In no scenario does an advertiser pay more than their bid," it says.

On disclosure, Amazon says its Campaign Builder has stated since 2018 that a bid is the maximum an advertiser could be charged, that the training videos and courses the FTC cites were older, generally low-reach material since removed or updated, and that its Help content now explains reserve prices. Advertisers, it argues, "adjust bids based on real-world performance, not descriptions of auction mechanics."

One detail matters outside the US. The case concerns US advertising customers, but the complaint alleges that in February 2021 Amazon "decided to target a cumulative 20% CPC increase" in Germany and up to 9% in the UK, France, Italy and Spain.

A retail media auction audit you can run this quarter

The complaint is specific about why advertisers could not see the surcharge: keyword-level reporting, placement reports that blended desktop and mobile, and automated bidding, which meant, in the words of an internal Amazon document it quotes, that "an advertiser doesn't even know what bid is being entered". Any network that reports only in aggregate leaves the same blind spots, so these checks apply well beyond Amazon.

1. Track CPC as a share of your bid, weekly, by keyword, placement and device. The complaint says Amazon tracked this ratio internally as the "monetization rate". A ratio drifting toward 100% while the competition looks unchanged is the pattern to investigate.
2. Log the bids your tools submit. If an automated bidder changes bids through the day, the only bid you know is the one you record.
3. Run a bid-step test. Cut manual bids on a matched set of stable keywords by a fixed step for two weeks, with a control group. In a genuine second-price auction, small cuts often leave CPC unchanged until you lose position. If CPC falls almost one-for-one while impressions hold, you are probably paying your bid.
4. Read seasonal peaks as ratios. The FTC alleges far greater price increases on Prime Day and Black Friday, and the complaint says Amazon first launched Sponsored Brands reserves over the 2018 holidays so that "price increases were masked by holiday increases in advertiser demand". Rising competition lifts CPC at peaks and can lift the ratio too; a ratio pinned near 100% across most keywords is the warning sign.
5. Put auction terms in writing. Ask each network which format it runs, whether hard, soft or dynamic reserves apply, whether they vary by placement, device or season, and whether you will be told when pricing changes. Where you have negotiating power, write the answers into the insertion order.
6. Ask for reporting that would reveal the pattern: the share of clicks charged at your bid, and CPC as a percentage of bid by placement and device. Amazon says Amazon Marketing Stream pushes hourly keyword- and placement-level data into advertisers' own systems.

None of this requires deciding who is right. The audit also lays the groundwork for a harder question, whether the clicks were worth buying, which we cover in measuring marketing in an AI attribution world. If your retail media spend runs across several networks, the same checks belong in every paid media audit.