Amazon runs a second-price auction for its search ads, a system in which the winning advertiser is supposed to pay one cent more than the next-highest bid.
The Federal Trade Commission now alleges that Amazon charged advertisers their full winning bid roughly 80% of the time instead.
The agency and 22 states sued Amazon on Monday, in a case first reported by the Wall Street Journal. The complaint covers seven years of advertising activity involving more than one million brands and sellers.
The reason second-price auctions became common in digital advertising is that they are supposed to make honest bidding the rational choice.
If an advertiser knows it will pay only slightly more than the next-highest bidder, there is little reason to deliberately bid below what the ad is worth to the business.
