Key points
- The FTC and 22 states sued Amazon (AMZN) on Monday, alleging a hidden surcharge in its ad auctions extracted tens of billions from more than a million advertisers.
- The complaint quotes Amazon's own documents calling the mechanism an "invented auction participant" and a "clever non-transparent way to charge first price."
- Amazon booked $68.6 billion in advertising revenue in 2025. The stock fell about 2.9% on the news.
The Federal Trade Commission and the attorneys general of 22 states sued Amazon (AMZN) on Monday in the US District Court for the Western District of Washington, alleging the company secretly inflated the prices advertisers paid in its search advertising auctions for more than seven years.
The complaint says the practice affected more than one million brands and sellers, including over 500,000 small and medium-sized businesses, and likely extracted tens of billions of dollars from them. The Commission vote authorizing the filing was 2-0.
Amazon traded near $258.72 Monday afternoon, down about 2.9% from Friday's close of $266.43.
FTC Chairman Andrew N. Ferguson said Amazon has "millions of advertising customers who were misled into paying significantly higher prices," and that "these higher costs were largely passed on to American consumers."
How Amazon allegedly manipulated the auctions
Amazon told advertisers it ran a generalized second-price auction. In that format, the winning bidder pays one cent more than the next highest bid rather than their own bid amount. It has been the standard structure for digital advertising placements for years.
Beginning in 2019, according to the complaint, Amazon added an undisclosed charge it referred to internally as a "soft reserve price." Amazon entered its own bid into the auction, above the actual runner-up, which raised the price the winner paid.
The auction format matters because it changes bidding behavior. In a first-price auction, bidders shade their bids downward over time to find the minimum needed to win. In a second-price auction, they bid closer to what the placement is genuinely worth, because the rules cap what they pay.
The complaint alleges Sponsored Products advertisers paid their own full bid amount between 30% and 40% of the time in 2021, about 70% of the time in 2022, and roughly 80% by 2024. The FTC says Amazon raised surcharges further ahead of high-volume shopping days including Prime Day and Black Friday.
What Amazon said internally
The executive in charge of Amazon Ads explained internally that the price advertisers pay "isn't set by an actual bidder" but is a "proxy 2nd price that we calculate," according to the complaint. Another document quoted by the FTC says Amazon uses an "invented auction participant" to increase prices. The FTC characterizes those as shill bids.
A separate document quotes an Amazon employee saying the surcharges let the company reach prices "beyond what [can] be achieved through advertiser competition."
The complaint also cites notes from a 2024 discussion among senior executives, including the head of Amazon Ads and Amazon's chief digital economist, describing the approach as a "clever non-transparent way to charge first price" that had been an "incredibly effective way to drive revenue."
On concealment, the FTC quotes internal warnings that disclosure would cause "irrevocable damage to advertiser trust" and a "downward spiral" as advertisers reduced their bids. Another employee is quoted saying the surcharges are "good for Amazon" because "advertisers must pay more for the same advertising," and that "the benefit to Amazon comes at the cost of advertisers."
The complaint says Amazon gave false and misleading answers to advertisers who asked directly whether the auction format had changed.
How much the surcharge may have generated
Amazon reported $68.6 billion in advertising revenue for 2025, up about 22% from the prior year. That makes it the third-largest digital advertising business behind Alphabet (GOOGL) and Meta (META). Fourth-quarter ad revenue alone was $21.3 billion.
The FTC does not allege the entire business is affected. The surcharge applies to a portion of the price on a subset of auctions.
The suit follows two other federal actions. Amazon agreed in September 2025 to pay $2.5 billion to settle FTC charges over Prime enrollment and cancellation practices. A separate antitrust case brought against the company in 2023 remains pending.
What the lawsuit means for AMZN
Amazon has not responded to the specific allegations. A complaint presents one side's account, and the company has contested parts of previous FTC cases.
The FTC's stated theory is that the surcharge worked because advertisers believed the auction was something else. The complaint quotes Amazon's own documents predicting that disclosure would trigger a "downward spiral" of lower bids, and states that Amazon concealed the change specifically to prevent advertisers from bidding lower.
The case was filed by attorneys from the FTC's Northeast Regional office, including Jonathan Platt, Darren Lubetzky and Adam Hersh. Amazon reports third-quarter results in late October.
