The Federal Trade Commission (FTC) and a coalition of 22 state attorneys general filed a lawsuit against Amazon on Monday, alleging the company has engaged in deceptive practices by secretly inflating prices in its online search advertising auctions for over seven years. The complaint, filed in the U.S. District Court for the Western District of Washington, claims Amazon's actions have extracted tens of billions of dollars from over one million brands and sellers, including more than 500,000 small and medium-sized businesses.
The lawsuit centers on Amazon's alleged manipulation of its "second-price" auction system. In a traditional second-price auction, the winning bidder pays only one cent more than the second-highest bid. However, the FTC and states allege that Amazon introduced an undisclosed surcharge, referred to internally as a "soft reserve price," which caused advertisers to pay substantially more than the actual second-place bid. Internal documents cited in the complaint, including notes from a 2024 discussion between Amazon executives, reportedly acknowledge a "clever non-transparent way to charge first price" that was "incredibly effective to drive revenue."
According to the complaint, Amazon actively concealed these surcharges from advertisers, even providing misleading answers to direct inquiries about changes to its auction format. The lawsuit claims that the percentage of time advertisers paid their own bid amount for Sponsored Products ads increased from 30-40% in 2021 to approximately 80% in 2024 due to these surcharges. This alleged concealment prevented advertisers from adjusting their bids, leading to higher costs.
Amazon has issued a public response, calling the lawsuit "misguided" and asserting that the FTC "misunderstands how advertisers operate." The company stated that advertisers adjust bids based on real-world performance, not on the technical descriptions of auction mechanics. Amazon also claims that the average cost-per-click for Sponsored Products search ads, when adjusted for inflation, remained flat from 2019 through 2024, while conversion rates for individual advertisers increased by 24% from 2021 to 2025. Amazon argues that its system prioritizes ad relevance, which has led to better performance for advertisers, and that approximately 92% of winning Sponsored Products ads in 2024 were not the highest bid. The company estimates that advertisers saved over $8 billion from 2021 to 2025 due to Amazon prioritizing ad relevancy.
The FTC and states allege that Amazon's scheme has not only harmed advertisers but has also led to higher prices for American consumers, as increased advertising costs are often passed on through product prices. FTC Chairman Andrew N. Ferguson stated that "Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers." New York Attorney General Letitia James indicated that the lawsuit seeks a court order to halt the alleged "illegal scheme" and to require Amazon to pay penalties, restitution, and other damages.
This lawsuit follows other recent legal actions against Amazon by the FTC. In September 2025, the FTC filed a complaint alleging Amazon knowingly enrolled millions of consumers into its Prime program without consent and made cancellations difficult. In June 2026, Amazon paid $2.25 million to settle FTC allegations of violating the Fair Credit Reporting Act. This current advertising lawsuit is separate from a broader antitrust case filed by the FTC against Amazon, which is scheduled for trial next year.