Amazon is facing a major new legal challenge from federal regulators and a broad coalition of state attorneys general, who have accused the e-commerce giant of orchestrating a secret scheme to inflate advertising prices for businesses operating on its platform.
The lawsuit, filed on a Monday in federal court, alleges that Amazon spent more than seven years quietly increasing the prices that brands and sellers paid through its online advertising auctions. According to the complaint brought by the Federal Trade Commission alongside 22 state attorneys general, this alleged practice affected more than 1 million brands and sellers globally, potentially generating tens of billions of dollars in additional, unauthorized revenue for the company.
The legal action marks a significant escalation in regulatory scrutiny facing Big Tech, particularly regarding digital advertising transparency and marketplace practices. The 22 states joining the FTC in the lawsuit 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.
At the center of the complaint are Amazon’s core advertising offerings, including Sponsored Products ads, Sponsored Brands ads, and Display ads that appear prominently alongside search results when shoppers browse the platform. For millions of merchants trying to reach consumers in an increasingly crowded digital marketplace, these ad spaces are vital for visibility and sales.
According to the FTC’s complaint, Amazon told more than 500,000 small and medium-sized businesses that it operated a standard "second-price" auction model. In a traditional second-price auction, the winning advertiser pays just one cent more than the next-highest bid, rather than the full amount of their own initial bid. Businesses rely heavily on this mechanism because it encourages aggressive bidding while protecting them from overpaying. Because merchants believed they would only ever pay slightly more than the runner-up, they had a strong economic incentive to submit high bids, trusting that the platform’s pricing system would keep their actual costs in check.
However, the FTC alleges that beginning in 2019, Amazon instituted a surreptitious change to its auction mechanics without informing advertisers. The company allegedly added a hidden price floor—which Amazon executives internally referred to as a "soft reserve price"—and utilized what one internal document described as an "invented auction participant," essentially a fake bidder designed to artificially push prices higher than true market competition would have naturally produced.
The complaint asserts that this mechanism functioned as a shill bid. Instead of the clearing price being driven by real competing advertisers in an open marketplace, Amazon was manufacturing a higher baseline number that advertisers were forced to beat to secure placement. As a direct result of this hidden intervention, the FTC claims that Amazon charged Sponsored Products advertisers their own full, unadjusted winning bids nearly 80 percent of the time. In practice, this effectively transformed what was explicitly marketed and understood as a second-price auction into a first-price auction, where merchants paid the absolute maximum limit of what they were willing to spend.
Regulators argue that Amazon implemented this structural change simply because it wanted to maximize its advertising revenue, and deliberately kept it hidden from sellers because full disclosure would have likely caused advertisers to lower their bids, ultimately cutting into the company’s financial gains. Digital advertising has grown into a massive, highly lucrative pillar of Amazon’s overall business empire. Last year alone, the company generated more than $68 billion in advertising revenue, cementing its position as one of the dominant players in the digital ad landscape alongside tech giants like Google and Meta.
In response to the sweeping lawsuit, Amazon pushed back forcefully, releasing a public blog post describing the FTC’s legal action as misguided. The company argued that the complaint fundamentally misunderstands how advertisers operate within modern digital marketplaces. Amazon maintained that its auctions evaluate billions of complex bids across a vast array of different placements and formats, meaning that prices naturally fluctuate and vary based on real-time market dynamics. Furthermore, the company asserted that advertisers are properly and transparently informed about its pricing systems.
As the legal proceedings move forward, the case is expected to draw intense scrutiny from antitrust experts, digital marketers, and lawmakers alike. With more than a million businesses potentially impacted and billions of dollars in revenue under examination, the outcome of the lawsuit could reshape how digital advertising auctions are regulated and operated across the entire technology sector.
