Is Amazon Cheating Your Ads? | Upside #106

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7 Oct

Is Amazon Overcharging You for Ads? The FTC Case Explained

The FTC and 22 state attorneys general allege that Amazon quietly manipulated the cost of bidding in its advertising for around seven years. This episode covers what is being alleged, how Amazon is responding, and how to protect your ad spend whatever the court decides.

In this episode: The team walks through the allegations in the federal case, Amazon's defence, and the practical changes sellers can make to their bidding setup, with a reminder that everything about the case is alleged and the trial is not expected to start until early next year.

Key takeaways

The FTC alleges Amazon used hidden "soft reserves" in what sellers believe is a second price auction, so advertisers paid their full bid around 80% of the time by 2024, up from roughly 30 to 40% in 2021.
Amazon says reserve prices are industry standard and that you never pay more than you bid. The hosts argue its point about falling average bids doesn't answer the real question, which is how often sellers pay their top bid.
The case covers the US only, but the fixes are worth making anywhere: keep auto campaigns to about 10% of spend, use an automated bidder to push bids down, and set bid adjustments to down only.

Timestamps

00:00 What we're covering: the claims, Amazon's response, and how to protect yourself
00:24 The FTC and 22 states take Amazon to federal court
00:46 Seven years of alleged hidden search charges across sponsored ads
01:51 How a second price auction should work
03:01 The alleged soft reserves, and advertisers paying their full bid 80% of the time
03:55 The internal emails
04:53 Amazon's response
06:22 Are we surprised?
08:13 How will it end? The auto campaign theory
09:58 How to protect yourself: manual campaigns and automated bidders
11:56 What an AI bidder actually does
13:01 Switch your bid adjustments to down only
13:36 US only for now, and wrapping up

The detail

The allegations: the FTC and 22 states say Amazon ran seven years of hidden search charges across sponsored products, sponsored brands and sponsored display, potentially affecting over a million advertisers and half a million small businesses, with tens of billions of dollars in extra ad cost. In a true second price auction you pay just above the runner up's bid. The claim is that Amazon swapped that runner up bid for its own higher floor, which the FTC calls a shill bid, effectively turning the auction into a first price one without telling anyone. Internal emails released in the case allegedly describe it as a clever, non-transparent way to charge a first price auction. This is a deception case rather than an antitrust one.

Amazon's response: it says reserve prices are standard in the industry, that advertisers never pay more than they bid, and that average winning bids fell 50% from 2019 to 2025 because of relevance. The hosts' counter is that falling averages are explained by sellers moving into cheaper long tail keywords, and that the real question is the shift in how often advertisers pay their full bid. They think the case is more likely to settle than go to trial. Their theory, which is not part of the filing, is that auto campaigns could be used to create apparent demand on obscure keywords and justify higher reserves.

How to protect yourself: move keywords out of auto campaigns into manual ones and keep auto to around 10% of spend, treating it as discovery spend. Use an automated bidder that keeps pushing each keyword's bid down, as covered in How to Slash Your Cost-Per-Click by 90%. Switch bid adjustments from up and down to down only, so you don't give Amazon a reason to raise your bid. Bid as if every auction is first price, whatever the rules say.