Amazon Faces New FTC Lawsuit. Regulators Claim Advertisers Were Secretly Charged Higher Prices.

The Federal Trade Commission sued Amazon on Monday, accusing the e-commerce giant of secretly manipulating its advertising auctions to charge businesses higher prices, an alleged scheme regulators say may have generated tens of billions of dollars in additional revenue.

The lawsuit, joined by attorneys general from 22 states, alleges Amazon misled more than one million brands and sellers about how much they would pay to advertise products on its website and app. The case was filed in U.S. District Court for the Western District of Washington.

"Amazon has millions of advertising customers who were misled into paying significantly higher prices," FTC Chairman Andrew Ferguson said in announcing the case. "These higher costs were largely passed on to American consumers." At the center of the dispute is the auction system behind Sponsored Products, Sponsored Brands and Display Ads, the promotions shoppers routinely encounter alongside Amazon search results.

For years, Amazon described its advertising marketplace as a "second-price" auction. Under that model, an advertiser can submit the highest bid without necessarily paying the full amount offered. Instead, the winner generally pays only what is necessary under the auction rules to beat the next competitor.

The FTC alleges that Amazon quietly altered that system beginning in 2019 by introducing what the company internally called a "soft reserve price." According to the complaint, the undisclosed mechanism effectively acted as a surcharge, allowing Amazon to collect substantially more from advertisers than a traditional second-price auction would have produced.

Regulators allege Amazon's practices became increasingly aggressive. According to the FTC, Sponsored Products advertisers paid their own bid roughly 30% to 40% of the time in 2021. That climbed to 70% in 2022 and approximately 80% by 2024.

The agency also cites internal communications that appear to acknowledge how the system worked. In one document cited by regulators, an Amazon executive allegedly described the use of an "invented auction participant" to raise prices. Another internal discussion referenced what regulators characterized as a "clever non-transparent way to charge first price."

The stakes are particularly high because Amazon has transformed advertising into one of its biggest businesses. The company generated more than $68 billion in advertising revenue in 2025, much of it from Sponsored Products ads, making it the world's third-largest digital advertising company behind Google and Meta.

Amazon strongly rejected the government's allegations. In a response published Monday, the company called the lawsuit "misguided" and said the FTC "fundamentally misunderstands how advertisers operate." Amazon argues advertisers make bidding decisions based primarily on campaign performance rather than technical descriptions of its auction mechanics.

Amazon also disputes the claim that its changes harmed advertisers. The company said its auction model saved advertisers more than $8 billion between 2021 and 2025 compared with a system that selected advertisements based on bids alone. It said average winning bids for Sponsored Products search ads fell 50% from 2019 through 2025, while conversion rates increased more than 24% between 2021 and 2025.

The company also challenged the FTC's assertion that higher advertising costs ultimately hurt shoppers, saying the complaint provides no evidence that its auction practices resulted in higher consumer prices.

"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. "We look forward to making our case in court." The lawsuit adds another front to Amazon's increasingly consequential legal battle with federal regulators.

Amazon reached a $2.5 billion settlement with the FTC in September 2025 over allegations involving its Prime subscription practices. The company also faces a separate antitrust case brought by the FTC and 17 states accusing it of using monopoly power to inflate prices, weaken competition among third-party sellers and degrade the shopping experience. Amazon has denied wrongdoing in that case as well.