The FTC Says Amazon Rigged Its Ad Auction. What the Lawsuit Means for Your Sponsored Products Bids

For years, the standard explanation of Amazon's ad auction went like this: you set a maximum bid, and if you win, you pay just a little more than the next-highest bidder. On August 31, 2026, the Federal Trade Commission and 22 states filed a lawsuit saying that explanation stopped being true years ago. Amazon strongly disputes it. Nothing has been decided yet - but the case is a good moment to check whether your bids are built on how the auction actually works.

What the FTC Alleges

The case was filed in the U.S. District Court for the Western District of Washington, joined by attorneys general from 22 states including California, New York, Florida and Pennsylvania. According to the FTC's announcement:

• Amazon told advertisers it ran a 'second price' auction, where the winner pays one cent more than the next-highest bidder.
• Beginning in 2019, Amazon allegedly changed the rules without notice and added a surcharge it called a 'soft reserve price'. The FTC says internal documents described it as a 'proxy 2nd price that we calculate' and an 'invented auction participant'.
• The FTC says the share of time Sponsored Products advertisers paid their own winning bid rose from about 30-40% in 2021 to 70% in 2022 and about 80% in 2024 - which, if true, makes it much closer to a first-price auction.
• The complaint alleges Amazon gave misleading answers when advertisers asked whether the auction had changed, and that the practice extracted 'tens of billions of dollars' from more than one million brands and sellers, including over 500,000 small and medium-sized businesses.

Texas filed its own separate lawsuit over the same conduct on the same day.

What Amazon Says

Amazon calls the case misguided and published a detailed response. Its main points:

• The auction is a generalized second-price auction with two reserves: a 'hard reserve' (the minimum to enter) and a 'soft reserve' (a real-time estimate of what a placement is worth). If a winning bid clears both, the advertiser pays the soft reserve. An advertiser never pays more than their bid.
• Ads are ranked on relevance as well as bid. Amazon says in 2024 about 92% of ads shown were not the highest bid.
• Average Sponsored Products CPC was flat after inflation from 2019 to 2024, while average winning bids fell 50%.
• Amazon estimates its relevance-weighted ranking saved advertisers more than $8 billion from 2021 to 2025, and says advertisers set bids based on performance, not on descriptions of the auction.

Why It Matters for Your Bids, Whoever Wins

Here's the practical point both sides' descriptions share: the price you pay is often your bid, or close to it. Under the FTC's version, that happens about 80% of the time. Under Amazon's version, you pay the soft reserve - a real-time market estimate that can sit anywhere up to your bid. Neither version supports the old habit of setting a high maximum bid on the assumption that you'll usually pay much less.

If you've been bidding $3.00 on a keyword because 'we only ever pay about $1.80', look at your reports. If your average CPC is already sitting close to your bid, your bid is your price.

Four Bidding Changes That Make Sense Now

1. Check your CPC-to-bid ratio

In a targeting report, compare each keyword's average CPC with its current bid. Where CPC is 90% of the bid or more, you're paying roughly what you bid. Those keywords deserve the most scrutiny, because every bid increase there goes almost straight into your cost per click.

2. Bid what a click is worth - not what you hope to pay

Set each bid from the math, not from 'headroom': maximum profitable CPC = average order value x conversion rate x target ACoS. A $35 product converting at 10% with a 25% target ACoS supports a bid of about $0.88. If that keyword's bid is $1.50, you're relying on a discount the auction may not give you.

3. Use placement adjustments instead of high base bids

If you're bidding high to win top-of-search, keep the base bid at the profitable level and use a top-of-search placement adjustment instead. You pay the higher price only where it actually converts better, rather than everywhere the keyword shows.

4. Watch relevance, not just bids

The one point both sides agree on is that relevance matters a lot: Amazon says most winning ads aren't the highest bid. Tight keyword-to-product matching, strong main images, good conversion rates and clean negative keyword lists all help you win placements without paying the most. This is where structured campaigns built around buyer intent earn their keep.

What to Do Right Now

1. 1Export your targeting report for the last 60 days and sort by CPC-to-bid ratio.
2. 2Recalculate bids for your top-spending keywords from order value, conversion rate and target ACoS.
3. 3Move 'win top-of-search' logic from base bids into placement adjustments.
4. 4Keep your own records of spend and CPC over time - they're useful whatever happens in court.
5. 5Follow the case through the FTC's announcements rather than third-party claims about refunds.

If you're heading into the busiest weeks of the year, these changes matter more than usual - see our Black Friday and Cyber Monday 2026 PPC plan for how to set bid ceilings per product.