Key takeaways:
- The FTC and 22 states allege Amazon secretly inflated online search advertising auction prices for seven years, costing advertisers tens of billions of dollars.
- Regulators say Amazon told advertisers they would pay one cent more than the second-highest bidder but charged winning bidders their own price about 80% of the time.
- Amazon called the lawsuit misguided and said average winning bids for sponsored product ads dropped 50% from 2019 to 2025.
Federal regulators and 22 states sued Amazon on Monday, accusing the company of secretly inflating prices in online advertising auctions and overcharging more than 1 million brands and sellers that pay to promote products on its platform.
The Federal Trade Commission and a bipartisan group of state attorneys general allege Amazon manipulated the bidding process for search ads on its website and mobile app for seven years, pocketing tens of billions of dollars through undisclosed surcharges. The lawsuit says the higher advertising costs were often passed on to consumers.
“When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering,” FTC Chairman Andrew N. Ferguson said in a statement. “Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers.”
The complaint focuses on Amazon’s use of so-called second-price auctions, a common method for selling digital ads. According to the lawsuit, Amazon told businesses they would pay only “one cent more” than the second-highest bidder for an advertising keyword. But regulators allege Amazon instead charged winning advertisers their own bid price about 80% of the time.
The lawsuit says Amazon “secretly and systemically” overcharged advertisers by manipulating auctions used by about 1.2 million brands and sellers. “In executing its scheme to misrepresent and rig its auctions against its customers, Amazon has deceived its customers and deprived them of the benefits of competition and fair and transparent dealing,” the government’s complaint says, according to NPR.
Amazon rejected the allegations and called the lawsuit “misguided.” The company said the FTC misunderstood how advertisers make decisions and argued that the average winning bids for sponsored product ads fell 50% from 2019 to 2025.
“The FTC’s claim fundamentally misunderstands how advertisers operate,” Amazon said in a statement. “Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics.”
Amazon also said the quality of its advertising improved over time while the average cost-per-click remained flat when adjusted for inflation, NPR reported. The company said the lawsuit does not show harm to shoppers.
“Even accepting the FTC’s flawed premise that advertisers do not adjust bids, we estimate they saved over $8 billion from 2021 to 2025 as a result of Amazon prioritizing ad relevancy over selecting ads on bid price alone,” Amazon said.
The FTC complaint cites internal Amazon documents that regulators say show the company knew advertisers believed they were participating in a true second-price auction. One Amazon executive, according to the complaint, described discussions about raising prices while “hoping that advertisers don’t notice and decrease bids or ad spend.”
North Carolina Attorney General Jeff Jackson said Amazon tested how much it could increase hidden charges without advertisers detecting them. “Amazon takes great pains to actively conceal from customers the fact that it inflates its purported auction prices,” the lawsuit alleges. “As Amazon’s confidence that its advertising customers are unaware of its conduct has grown, it has substantially increased its hidden surcharges.”
The states joining the FTC 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.
New York Attorney General Letitia James said the FTC and states are seeking a court order to stop Amazon from continuing the alleged scheme and to require penalties, restitution and other damages.
The case is the third major federal lawsuit against Amazon in recent years. NPR reported that Amazon agreed just over a year ago to pay a $2.5 billion settlement in a federal case involving its Prime membership program, and the company also faces an FTC lawsuit brought with 17 states alleging it acts as a monopolist. In 2023, Amazon paid $30 million to settle FTC allegations involving privacy violations tied to Alexa and Ring.
Amazon’s advertising business has continued to grow. NPR reported that it rose 26% in the latest quarter and brought in almost $69 billion over 2025.
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