WASHINGTON, D.C. — The Federal Trade Commission and 22 states sued Amazon.com Inc. on Aug. 31, alleging the company secretly manipulated its advertising auctions to extract more than $20 billion from roughly 1.2 million advertisers since 2019, escalating regulatory scrutiny of one of Amazon’s fastest-growing businesses.
The lawsuit, filed in the U.S. District Court for the Western District of Washington, alleges Amazon represented its advertising system as a generalized second-price auction while using undisclosed pricing mechanisms that pushed advertisers closer to paying their full bids. The FTC case remains pending.
The states joining the FTC are Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington.
Amazon disputes the allegations, calling the lawsuit “misguided” and saying the FTC mischaracterized how its ad auctions operate. The company said its pricing system prioritizes ad relevance and argued that advertisers have benefited from lower winning bids and improved returns.
The case centers on advertising placements including Sponsored Products, Sponsored Brands and Display Ads that appear alongside product-search results on Amazon.com and its mobile app.
According to the complaint, Amazon told advertisers for years that it operated “second price” auctions in which the winning bidder would generally pay just above the next-highest qualifying bid rather than its own maximum bid. That distinction can materially affect how advertisers set bids because bidders in a genuine second-price auction have less incentive to shade bids downward.
The FTC alleges Amazon began altering that structure in 2019 by introducing an undisclosed “soft reserve price.” The complaint contends that the mechanism effectively inserted a price determined by Amazon into the auction rather than allowing competition among advertisers alone to establish the final charge.
One internal document cited in the complaint described Amazon as using an “invented auction participant,” while another characterized the pricing mechanism as a “proxy 2nd price.” The FTC alleges those mechanisms functioned like shill bids designed to raise advertising prices beyond levels produced through advertiser competition.
Amazon acknowledges using reserve prices but rejects the FTC’s characterization. The company described its soft reserve price as a real-time estimate of the market value of an advertising placement and said advertisers never pay more than the amount they bid.
The dispute carries significant financial stakes. The FTC alleges Amazon’s pricing practices generated more than $20 billion in additional advertising revenue, with higher surcharges imposed on major shopping periods such as Prime Day and Black Friday.
More than 500,000 small- and medium-sized businesses were among the advertisers affected by the auctions, according to the complaint.
The FTC alleges the impact grew substantially over time. Sponsored Products advertisers paid their own winning bid between 30% and 40% of the time in 2021, rising to about 70% in 2022 and approximately 80% by 2024 because of the disputed surcharges.
Regulators also accuse Amazon executives and employees of deliberately withholding information about the pricing changes because disclosure could cause advertisers to lower their bids.
The complaint cites internal communications warning that disclosure could cause “irrevocable damage to advertiser trust” and prompt advertisers to reduce bids, threatening advertising revenue.
FTC Chairman Andrew Ferguson said the agency alleges Amazon’s customers were “misled into paying significantly higher prices” and that those additional advertising expenses were largely passed along to consumers. The allegation that consumers ultimately paid higher prices is part of the government’s case and is disputed by Amazon.
Amazon said the FTC’s complaint provides no evidence of resulting consumer-price increases. It also said inflation-adjusted cost per click for Sponsored Products remained flat from 2019 through 2024 and that average winning bids fell 50% from 2019 through 2025.
The company further estimated that its auction system saved advertisers more than $8 billion from 2021 through 2025 compared with an approach that emphasized bid price rather than ad relevance. Those figures are Amazon’s own estimates and are among the factual and economic issues now contested in the litigation.
The FTC Commission voted 2-0 to authorize the lawsuit. The government is seeking monetary relief and an injunction against the challenged practices.
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