Attorney General Neronha, coalition sue Amazon over deceptive advertising scheme

Published on Monday, August 31, 2026

Attorney General Peter F. Neronha today joined a coalition of 21 attorneys general and the Federal Trade Commission (FTC) in suing Amazon.com, Inc., over deceptive practices that cost advertisers billions. The coalition alleges that Amazon inflated advertiser costs by entering artificial bids into its advertising auctions that cost its business customers, including 500,000 thousand small- and medium-sized businesses, tens of billions of dollars.

"As alleged, this is a textbook example of illegal behavior by a corporation which places profits above all else," said Attorney General Neronha. "The ubiquity of Amazon in American society pushes small- and medium-sized businesses to engage with the Company in order to stay afloat. Of course, Amazon knows its power, and here we allege that it consistently and illegally exerted said power to essentially fix its advertising auctions, leaving small businesses to foot the bill to the tune of tens of billions of dollars. While the nature of Amazon's alleged conduct is certainly not unprecedented, that doesn't mean we have to tolerate it. Fair and healthy competition promotes affordability for all consumers and gives small businesses a shot in an increasingly consolidated marketplace. And as state attorneys general, we will fight to make sure businesses obey the law, no matter their size or power."

According to the complaint, Amazon's "second price" auctions have been described by the Company, and understood by advertisers, to be run as generalized second-price, or GSP auctions, which have been the accepted industry standard for digital advertising placements. In these auctions, prospective advertisers bid to place Sponsored Product ads, Sponsored Brands ads and Display Ads alongside the results that appear when a consumer searches for a product using a keyword on Amazon's store. Placements are auctioned to the highest-ranked bidder for each keyword. In second-price auctions, bidders are more likely to bid higher, closer to their true value for the product, because they will only be liable to pay the least bid amount needed to win under the auction's rules.

The coalition alleges that Amazon told advertisers it ran a GSP, but for years its auction pricing had "a surcharge hidden in it," in the words of one internal Amazon document. The complaint alleges that, beginning in 2019, Amazon changed its auction rules without notice by adding an undisclosed surcharge that Amazon referred to internally as a "soft reserve price." This resulted in advertisers paying substantially more than the price determined by the GSP auction.

As alleged, Amazon's conduct included sustained efforts to conceal this practice from advertisers, and Amazon's profit from this conduct has increased in amount and frequency over time since their initial implementation. As Amazon imposed a surcharge on businesses who advertise on the platform, it told advertisers that inflated costs were a byproduct of increased shopping volume.

According to the complaint, Amazon acknowledged it uses an "invented auction participant" to increase prices. The complaint alleges that Amazon's "invented auction participant" and its hidden "proxy 2^nd price" bids are essentially shill bids. The complaint also quotes from another Amazon employee, who stated that Amazon's surcharges enable it to obtain prices "beyond what [can] be achieved through advertiser competition."

The complaint alleges that Amazon's unlawful scheme has generated tens of billions of dollars of revenue for the company by, for example, substantially increasing the prices charged to advertisers on ordinary shopping days and applying far greater increases to prices on high-volume shopping days like Prime Day and Black Friday. The complaint quotes notes from a 2024 discussion between senior executives, including the head of Amazon Ads and Amazon's Chief Digital Economist, where they acknowledged that Amazon's "clever non-transparent way to charge first price" has been an "incredibly effective way to drive revenue."

The coalition alleges that Amazon's conduct violated the FTC Act and state consumer protection statutes, including Rhode Island's Deceptive Trade Practices Act.

The coalition is seeking civil penalties, restitution, costs and fees, and injunctive relief.

Joining Attorney General Neronha in filing this lawsuit are the attorneys general of Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, South Carolina, Vermont, and Washington, as well as the FTC.

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