Second-price auction (GSP)

Ranking and pricing are separate steps, and only the second is in dispute. Amazon ranks ads on a blend of bid and predicted relevance — no formula published — then prices the click. In a textbook generalized second-price auction the winner pays the minimum needed to outrank the next ad; GSP is not the single-item Vickrey auction it gets confused with, so bidding your true maximum is not a dominant strategy even when the mechanism works as advertised. Amazon's auctions help page, updated April 27, 2026, never uses the phrase "second price". The hard/soft reserve vocabulary comes instead from Amazon's August 31, 2026 litigation response: the hard reserve gates entry, the soft reserve is a real-time estimate of the placement's value, and you pay it when your bid clears both.

Paying "one cent more than the next highest bidder" was not seller folklore — the FTC says Amazon told advertisers that for years. On August 31, 2026 the FTC and 22 state attorneys general sued Amazon in Washington federal court, alleging an undisclosed surcharge it internally called a "soft reserve price"; Amazon contests all of it, and nothing has been adjudicated. Practically, no report exposes a reserve field, so CPC is your only instrument: on a stable keyword with dynamic bidding off, cut the bid 15–20% and watch CPC. A CPC that falls in lockstep is consistent with a floor you were financing, but equally consistent with plain GSP. Treat it as a hint worth repeating by placement and across peak periods, not a verdict.