Amazon did not become an advertising giant by selling banners next to a store. It built a tollbooth inside the moment a customer decides what to buy. Now the mechanism setting that toll is the subject of a federal lawsuit.

The Federal Trade Commission and 22 states allege that Amazon secretly added a soft reserve price to advertising auctions beginning in 2019. Amazon had represented the system as a generalized second-price auction, where a winning advertiser pays just above the next-highest bid. The complaint says the hidden surcharge increasingly caused advertisers to pay their own bid instead.

According to the filing, Sponsored Products advertisers paid their full winning bid between 30 and 40 percent of the time in 2021, 70 percent in 2022, and roughly 80 percent in 2024. The government alleges the practice affected more than one million brands and sellers and extracted tens of billions of dollars. Those are allegations in a pending case, not judicial findings.

Amazon disputes the accusation. In a response reported by the Associated Press, the company said the FTC used a handful of simplified internal communications to invent a companywide effort to deceive and called that claim false. The litigation will have to establish what the auction actually promised, how prices were calculated, and whether advertisers could understand the system well enough to bid rationally.

That last point is the real leverage question. A second-price auction encourages a buyer to bid near the value of the placement because the next bidder helps set the price. A hidden reserve chosen by the platform changes the game while preserving the appearance of competition. If the government proves its case, Amazon was not merely participating in the market. It was quietly bidding against the people who needed access to it.

LaunchPad positionMarketplace power is not just control over who appears. It is control over the pricing mechanism that decides what visibility costs, especially when sellers cannot realistically leave the platform.
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