A company that buys ads in online auctions should count how often the platform charges it exactly its own bid.
The case for that count comes from a working paper on ad auctions by one economist. The National Bureau of Economic Research issued it in October 2026. The paper starts from a lawsuit against Amazon.
On August 31, 2026, the Federal Trade Commission and 22 states sued Amazon over its ad prices. A release from Nebraska's attorney general describes the complaint. Amazon described its ad auctions as "second price" auctions. In such an auction, the winner pays only slightly more than the next highest bid. The complaint alleges that in 2019 Amazon began adding hidden extra charges, known internally as "soft reserve prices".
The complaint also alleges that by 2024, advertisers paid their full bid about 80 percent of the time. A winner that pays its full bid pays the most it offered, rather than just above the next highest bid. Amazon called the complaint "misguided" and "patently false", TheWrap reported. Amazon says the average price per click on its Sponsored Products search ads stayed flat from 2019 through 2024, adjusted for inflation. Amazon says it looks forward to making its case in court.
The paper explains why such a charge is hard to spot. An advertiser sees the price it paid for each ad. It does not see the rival bids that are supposed to set that price. Earlier research from 2020 shows that this lets a platform charge a winner as much as its own bid without being caught. The paper calls this hidden extra charge a soft reserve.
The paper finds that an advertiser's reports decide whether it can catch a soft reserve. An advertiser catches it quickly by flagging every charge that equals its bid. Some reports show only how often the advertiser wins and what it pays on average. Those averages look the same under a soft reserve as under a second-price auction, as long as the advertiser keeps its bid the same.
The paper finds that one kind of advertiser never finds a soft reserve from averages alone. This advertiser believes the platform's description of the auction and bids what each ad is worth to it.
The paper also finds that a soft reserve sends some ads to the wrong buyers. This happens when only some advertisers adjust their bids to allow for the soft reserve. Ad slots then go to advertisers that value them less. Telling advertisers about the soft reserve leaves them more of the value of their ads. Removing the soft reserve also sends ad slots back to the advertisers that value them most.
The count needs only the company's own ad reports and some of its analytics team's time. Where a platform gives only averages, the company should ask it for every charge.
What to do first:
- Chief marketing officer: this quarter, ask each ad platform for a report that lists every charge next to the bid behind it.
- Head of analytics: each month, count the share of charges that equal the bid, for each platform and campaign.
- Chief financial officer: where that share rises from one month to the next, ask the platform why before the next ad budget is set.
The paper's author disclosed past work as a consultant on behalf of Amazon, on issues unrelated to this case.
