FTC and 22 States Sue Amazon Over Advertising Auction Pricing

The Federal Trade Commission and the attorneys general of 22 states filed suit against Amazon (AMZN ) on August 31, 2026, alleging the company engaged in deceptive and unfair practices that secretly inflated prices in its online search advertising auctions. The complaint, filed in the U.S. District Court for the Western District of Washington, alleges that for over seven years Amazon covertly and substantially increased the prices that more than one million brands and sellers were required to pay to advertise on its platform, extracting what the agency described as likely tens of billions of dollars from advertising customers.

The states joining the action 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. The FTC said the affected advertisers include more than 500,000 small- and medium-sized businesses that participated in auctions for advertising placements on Amazon.com and its mobile app, where prospective advertisers bid to place Sponsored Products, Sponsored Brands, and Display Ads alongside keyword search results. The Commission vote authorizing staff to file the complaint was 2-0.

The Allegations

According to the complaint, Amazon represented to prospective advertisers for years that it runs “second price” auctions in which the winner would pay only “one cent more than the next highest bidder.” In practice, the complaint alleges, Amazon charged its Sponsored Products advertisers their own winning bid close to 80% of the time, effectively converting the nominally second-price auction into a first-price auction. The FTC alleges that beginning in 2019, Amazon changed its auction rules without notice by adding an undisclosed surcharge it referred to internally as a “soft reserve price,” resulting in advertisers paying substantially more than the price determined by the generalized second-price, or GSP, auction.

The complaint quotes internal Amazon documents, including one describing auction pricing as having “a surcharge hidden in it,” and an executive in charge of Amazon Ads explaining that the price paid by advertisers “isn’t set by an actual bidder” but is instead a “proxy 2nd price that we calculate.” Another document quoted in the complaint acknowledges the use of an “invented auction participant” to increase prices, which the complaint characterizes as essentially shill bids. Notes from a 2024 discussion among senior executives, including the head of Amazon Ads and the company’s Chief Digital Economist, acknowledged that Amazon’s “clever non-transparent way to charge first price” had been an “incredibly effective way to drive revenue,” according to the complaint.

The complaint further alleges that the percentage of the time Sponsored Products advertisers paid their full bid amount rose from between 30% and 40% in 2021, to 70% in 2022, and to approximately 80% in 2024 as a result of the surcharges. It also alleges that Amazon applied far greater price increases on high-volume shopping days such as Prime Day and Black Friday, ramping up surcharges ahead of those days to disguise the inflation, and that the company concealed the changes because internal documents warned disclosure would cause “irrevocable damage to advertiser trust” and a “downward spiral” of advertisers lowering their bids.

“When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering,” said FTC Chairman Andrew N. Ferguson. “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 FTC under President Trump won’t allow this deception to continue.”

New Jersey Attorney General Jennifer Davenport, whose office joined the coalition, said in a separate statement announcing the suit that Amazon “promised competitive auctions to set prices and then quietly replaced those results with inflated prices designed to pad its own profits.” Her office alleges the conduct violates the New Jersey Consumer Fraud Act’s prohibitions against deceptive, unconscionable, and abusive commercial practices, while the FTC brings the action for violations of Section 5(a) of the FTC Act, including misrepresentation, deceptive auction manipulation, concealment, unfair omissions, and unfair billing practices.

Amazon’s Response

Amazon rejected the allegations in a company statement published August 31, 2026, calling the lawsuit misguided and saying it “fundamentally misunderstands how advertisers operate.” The company said there is no advertiser or consumer harm: from 2019 through 2024, the average cost-per-click for Sponsored Products search ads remained flat when adjusted for inflation, and the average winning bid for those ads fell 50% from 2019 to 2025. Amazon also said roughly 92% of placed ads in 2024 were not awarded to the highest bid, with the mean winning bid typically about the 128th bid by amount.

The company described its auction mechanics as combining ad relevance with bid price. It said it introduced a “hard reserve,” the minimum a bid must surpass to enter an auction, and “soft reserve prices,” a real-time minimum value intended to reflect what each placement is worth. When a winning bid exceeds both reserves, the advertiser pays the soft reserve; when it exceeds the hard reserve but not the soft reserve, the advertiser pays their bid. In no scenario, the company said, does an advertiser pay more than their bid, and reserve prices are common across the industry.

Amazon estimated that advertisers saved over $8 billion from 2021 to 2025 as a result of the company incorporating ad relevancy into its auctions rather than selecting ads on bid alone, even accepting what it called the FTC’s flawed premise that advertisers do not adjust their bids. The company said conversion rates for individual Sponsored Products advertisers increased over 24% from 2021 through 2025, and that in 2026 it estimates advertisers will deliver at least 58% higher sales and at least 46% better return on ad spend under the relevance-weighted model than under highest-bid ranking.

The company said its Ad Console Campaign Builder has stated since 2018 that a bid represents the maximum an advertiser could be charged, and that the FTC cherry-picked a small number of low-reach materials, including three training courses with a combined 1,849 enrollments and 779 completions over their lifetimes and one educational video viewed by 928 viewers over two and a half years. When discovered, those materials were removed or updated, the company said, adding that it updated its Amazon Ads Help content to explicitly explain the use of reserve prices after the FTC raised concerns.

Amazon said the FTC reviewed approximately 1.5 million pages of emails and documents spanning six years and relied on a handful of simplified communications to allege a companywide effort to deceive, which the company called patently false. It said it has shared its data with the FTC on multiple occasions and looks forward to making its case in court.