Dallas – Texas Attorney General Ken Paxton (R) launched a state lawsuit on Monday against Amazon, alleging the e‑commerce giant misled advertisers about the true cost of its Sponsored Products, Sponsored Brands and Sponsored Display ads. The suit, filed under the Texas Deceptive Trade Practices Act, claims Amazon stopped running genuine second‑price auctions years ago while still telling advertisers they would only pay enough to beat the next‑highest bid.
Alleged hidden surcharges
According to the complaint, Amazon began overriding auction‑generated prices in late 2018 for Sponsored Brands and by mid‑2019 for Sponsored Products, later extending the practice to Sponsored Display in 2023. The company allegedly used “soft reserve” prices – real‑time minimum values – to raise final charges. Paxton’s office says these undisclosed adjustments increased advertising costs by roughly 17% on ordinary shopping days and more than 25% during major events such as Prime Day, generating about $4.5 billion in additional nationwide revenue for Amazon in 2024.
More than 18,000 Texas sellers, vendors and authors rely on Amazon’s advertising platform. Paxton argues that higher ad expenses raise business costs and ultimately push up prices for consumers.
Federal action joins the fight
In a separate federal case, the Federal Trade Commission and 22 states filed a lawsuit in the U.S. District Court for the Western District of Washington. The FTC alleges Amazon’s hidden surcharges extracted tens of billions of dollars from over one million advertising customers over seven years, including more than 500,000 small‑ and medium‑sized businesses.
The federal complaint says the proportion of Sponsored Products advertisers paying their full bids rose from 30‑40% in 2021 to about 80% in 2024. FTC Chairman Andrew N. Ferguson warned that the alleged conduct caused advertisers to pay higher prices, which were largely passed on to consumers.
Amazon’s response
Amazon strongly rejected the allegations, maintaining that it has always priced clicks using a form of generalized second‑price auction. The company says “soft reserve” prices simply reflect market value and that advertisers never pay more than their maximum bids. Amazon also points to data showing the average cost per click for Sponsored Products remained flat after inflation adjustments from 2019 through 2024, while conversion rates increased by more than 24% from 2021 through 2025.
According to Amazon, the highest bidder did not win about 92% of selected Sponsored Products ads in 2024, indicating the system gives substantial weight to ad relevance. The company says it has updated its guidance to explain reserve pricing and added regular reviews and training for advertisers.
What’s at stake
The lawsuits focus on whether Amazon accurately described its advertising auctions. If the courts find the company misled advertisers, the Texas suit seeks civil penalties of up to $10,000 per violation and an order requiring Amazon to provide Texas advertisers with detailed records of bids, surcharges and final charges. The federal case could result in nationwide injunctive relief and significant monetary penalties.
Both cases underscore a growing concern among small‑business owners that large tech platforms may be using opaque pricing practices that ultimately burden families and consumers. The outcomes will have implications for how digital advertising is regulated and for the bottom line of Texas‑based entrepreneurs who rely on Amazon’s marketplace.
Original reporting: The Dallas Express — read the source article.
