The Federal Trade Commission (FTC) and 22 state attorneys general sued Amazon on Monday, accusing the company of secretly inflating prices paid by advertisers on its retail platform through undisclosed changes to its advertising auction system.
The complaint, filed in U.S. District Court for the Western District of Washington, alleges Amazon engaged in deceptive and unfair practices that affected more than 1 million brands and sellers. The FTC said the alleged conduct involved more than 500,000 small and medium-sized businesses that bought advertising placements on Amazon’s website and mobile app.
Regulators said Amazon may have extracted more than $20 billion from advertisers through the practice.
“Amazon has millions of advertising customers who were misled into paying significantly higher prices,” FTC Chairman Andrew Ferguson said. “These higher costs were largely passed on to American consumers.”
The lawsuit centers on Amazon’s Sponsored Products, Sponsored Brands and Display Ads, which appear alongside search results when consumers search for products on Amazon. Merchants bid for placement tied to specific keywords, with ads awarded to the highest-ranked bidder.
According to the complaint, Amazon represented for years that it used second-price auctions, where a winning advertiser would pay only the minimum amount needed to win, often described as one cent more than the next-highest bidder. The FTC alleges Amazon changed its auction rules beginning in 2019 by adding an undisclosed surcharge it internally called a “soft reserve price.”
The complaint says the change caused advertisers to pay substantially more than they would have under a generalized second-price auction. Regulators allege the practice effectively turned parts of Amazon’s ad marketplace into a first-price auction, where advertisers paid their own winning bid.
The FTC said the share of Sponsored Products auctions in which advertisers paid their own bid rose from between 30 percent and 40 percent in 2021 to 70 percent in 2022 and about 80 percent in 2024.
The complaint cites internal Amazon documents describing “a surcharge hidden in it” and an “invented auction participant” that increased prices. Regulators said Amazon concealed the practice to avoid backlash and prevent advertisers from lowering their bids.
Amazon rejected the lawsuit, calling it “misguided” and saying the complaint “fundamentally misunderstands how advertisers operate,” adding its auction systems saved advertisers $8 billion between 2021 and 2025, rather than costing them extra.
“We’ve provided advertisers with guidance about our auctions and pricing in the main tools they use to manage their campaigns, and we continue to update that guidance,” Amazon said in a blog post Monday afternoon. “We look forward to making our case in court.”
The company also said the FTC did not provide evidence that consumers paid higher prices.
“In over 150 pages, consumer harm is mentioned only a handful of times and is never substantiated with data,” Amazon noted. “Their damages model assumes no pass-through to consumers. Their proposed redress goes to advertisers, not shoppers. This is because there is no consumer harm.”
Washington, where Amazon’s headquarters are located, is one of several states participating in the case, as are other states like California and New York that have participated in large-scale consumer protection lawsuit against major tech companies in recent years.
The case is the FTC’s third major action against Amazon. The company agreed last year to pay $2.5 billion to resolve allegations tied to Prime subscription signups and cancellations. A separate FTC lawsuit accusing Amazon of illegal monopolization is scheduled for trial next year.
