Amazon is facing a major new legal challenge from the Federal Trade Commission and a broad coalition of 22 state attorneys general, who have accused the e-commerce giant of quietly and systematically charging businesses more for advertising on its platform through an undisclosed ad-pricing scheme.
The high-stakes lawsuit, filed on a Monday, claims that Amazon spent more than seven years covertly driving up the prices that advertisers paid through its online advertising auctions. According to the detailed regulatory complaint, the alleged practice affected more than 1 million brands, merchants, and third-party sellers. Regulators contend that this clandestine operational shift may have generated tens of billions of dollars in additional, unauthorized revenue for the retail and technology behemoth.
The 22 states joining the FTC in the landmark legal action span the country and include 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.
The core of the lawsuit centers around Amazon’s highly lucrative suite of advertising offerings, specifically its Sponsored Products ads, Sponsored Brands ads, and standard Display ads that routinely appear alongside search results when shoppers look for items on the platform. According to the FTC’s findings, Amazon explicitly assured more than 500,000 small and medium-sized businesses that it operated a transparent "second-price" auction model. Under this widely recognized industry mechanism, the winning advertiser would supposedly pay just one cent more than the next-highest bid, rather than being forced to pay the full amount of their own original bid.
Because businesses firmly believed they would only ever pay slightly more than the runner-up, they were heavily incentivized to bid high, placing their trust in a system that they assumed would automatically keep their actual advertising expenditures safely in check.
However, the FTC alleges that beginning in 2019, Amazon instituted a surreptitious change without providing any notice to the advertisers who trusted its marketplace. The company reportedly added a hidden surcharge that executives and engineers internally referred to as a "soft reserve price." According to the complaint, Amazon utilized what one internal company document explicitly described as an "invented auction participant"—essentially a fake bidder designed specifically to artificially push prices higher than true market competition would have organically produced.
The regulatory complaint argues that this operational mechanic amounted to a deceptive shill bid. Rather than the clearing price being driven by real, competing market advertisers, Amazon was manufacturing an artificially higher number for businesses to beat. As a direct consequence of this practice, the FTC claims that Amazon effectively charged Sponsored Products advertisers their own full winning bid close to 80% of the time. In doing so, the company allegedly converted what was explicitly marketed and understood as a second-price auction into a first-price auction, completely altering the financial dynamics for merchants without their knowledge or consent.
The FTC asserts that Amazon implemented this structural change simply because it wanted to capture a larger share of advertising revenue. Furthermore, the agency argues that the company deliberately kept the adjustment hidden from the public and its merchant base because disclosing it could have prompted advertisers to lower their bids, which ultimately would have cut directly into Amazon’s bottom-line revenue.
The stakes in the digital advertising market are immense. Last year alone, Amazon generated more than $68 billion in advertising revenue, cementing its status as one of the most dominant digital advertising platforms in the global marketplace, trailing only industry giants like Google and Meta.
In response to the legal filing, Amazon published a blog post strongly pushing back against the government’s claims. The company described the FTC’s lawsuit as misguided, arguing in its defense that the regulatory complaint fundamentally misunderstands how modern digital advertisers operate and how online ad markets function at scale.
Amazon added that its complex ad auctions continuously evaluate billions of individual bids across a wide array of different placements and visual formats. Because of this dynamic complexity, the company argued that prices naturally vary, and it maintained that advertisers are properly and adequately informed about the platform’s pricing system.
