FTC Amazon Advertising Auction Lawsuit Explained

The Federal Trade Commission and 22 states sued Amazon on August 31, 2026, accusing the company of secretly manipulating the auctions used to price advertisements on Amazon.com and its app. The government alleges that Amazon told more than one million advertisers that its ad system generally operated as a second-price auction, in which a winning advertiser pays only slightly more than the next-highest bid, while Amazon was actually inserting undisclosed “soft reserve” prices that pushed the winner’s charge substantially higher. The FTC says Amazon internally described the system as using an “invented auction participant” and a hidden surcharge, generating tens of billions of dollars in additional advertising revenue. Amazon denies the allegations and says its advertising system is designed to produce relevant ads while delivering strong value to advertisers. [FTC] [FTC Complaint] [Reuters]

FTC And 22 States Sue Amazon

The lawsuit was filed August 31, 2026 in the U.S. District Court for the Western District of Washington. The FTC was joined by attorneys general from 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. [FTC] [Pennsylvania AG]

The case remains pending. The government is seeking monetary relief, civil penalties under applicable state laws and an injunction restricting the practices challenged in the complaint. [FTC]

Amazon’s Advertising Auctions Are At The Center Of The Case

Amazon sells prominent advertising placements alongside product-search results on its store. The lawsuit covers formats including Sponsored Products, Sponsored Brands and Display Ads. [FTC]

Advertisers bid on keywords associated with products they want to promote. When a shopper searches for one of those terms, Amazon conducts an automated auction to determine which ads receive available placements. [FTC]

Amazon conducts billions of advertising auctions every day. Multiple auctions can occur on a single shopping page because Amazon sells different kinds of placements and ad formats. [FTC Complaint]

Amazon Told Advertisers They Were Participating In Second-Price Auctions

The FTC says Amazon repeatedly described its system as a generalized second-price auction. Under that system, the winning advertiser generally pays only enough to beat the next-highest qualified bidder rather than paying its entire maximum bid. [FTC]

Amazon publicly told advertisers the auction winner would pay approximately one cent more than the next-highest bidder. The FTC says those representations appeared on Amazon websites, training videos, advertising materials and presentations delivered by Amazon sales employees. [FTC]

Why A Second-Price Auction Matters

Advertisers can bid differently depending on the auction format. In a true first-price auction, the winning bidder pays its own full bid, creating an incentive to bid below the maximum amount it is willing to pay.

In a second-price auction, advertisers can bid closer to their actual valuation because the amount they pay is determined primarily by competing bids rather than by their own maximum bid. [FTC]

The FTC alleges Amazon benefited because advertisers continued bidding as though the system were a genuine second-price auction even after Amazon changed its pricing mechanics. [FTC Complaint]

FTC Says Amazon Secretly Added A “Soft Reserve Price”

The complaint alleges Amazon changed its auction pricing beginning in 2019. The company allegedly began inserting what it internally called a “soft reserve price.” [FTC]

The reserve operated as an undisclosed minimum price generated by Amazon rather than another advertiser’s bid. If the next-highest genuine advertiser would ordinarily have produced a lower second price, Amazon’s reserve could raise the amount the winner had to pay. [FTC Complaint]

The FTC describes the difference as a hidden surcharge. According to the agency, Amazon imposed that surcharge without clearly telling advertisers that the auction’s pricing mechanics had changed. [FTC]

Internal Amazon Document Called It A Hidden Surcharge

The FTC complaint quotes an internal Amazon document describing the auction price as having “a surcharge hidden in it.” [FTC]

Another internal description said the price paid by advertisers was not necessarily set by an actual competing bidder. The FTC quotes the Amazon Ads executive responsible for the business describing a “proxy 2nd price that we calculate.” [FTC]

FTC Says Amazon Used An “Invented Auction Participant”

One of the most prominent allegations involves an internal Amazon description of an “invented auction participant.” According to the complaint, Amazon used the invented participant to generate a higher price than actual advertiser competition would otherwise have produced. [FTC]

The FTC characterizes those artificial bids as effectively functioning like shill bids. The complaint says they allowed Amazon to obtain prices beyond those produced by competition among real advertisers. [FTC]

Advertisers Allegedly Paid Their Full Bids More And More Often

The FTC says the hidden surcharge increasingly caused Sponsored Products advertisers to pay their own maximum bid. [FTC]

According to the complaint, that happened approximately 30 to 40 percent of the time in 2021. [FTC]

The figure allegedly increased to approximately 70 percent in 2022. [FTC]

By 2024, the FTC says Sponsored Products advertisers were paying their own bid roughly 80 percent of the time. [FTC]

More Than One Million Advertisers Were Allegedly Affected

The government says more than one million brands and sellers participated in the affected Amazon advertising auctions. [FTC]

More than 500,000 were small- and medium-sized businesses. [FTC]

Pennsylvania alone said more than 14,000 independent sellers in the state use Amazon to sell more than 100 million products annually. [Pennsylvania AG]

FTC Says The Scheme Generated Tens Of Billions Of Dollars

The FTC estimates that the alleged surcharges generated tens of billions of dollars for Amazon over more than seven years. [FTC]

Reuters reported that the government estimates advertisers suffered at least $20 billion in harm. [Reuters]

The complaint alleges that the additional revenue came directly from advertisers paying more for the same advertising placements. [FTC Complaint]

Prime Day And Black Friday Prices Were Allegedly Raised More Aggressively

The FTC says Amazon imposed larger advertising-price increases during high-volume shopping events. Prime Day and Black Friday are specifically identified in the complaint. [FTC]

The agency alleges Amazon gradually increased the surcharge before major shopping events rather than imposing the increase suddenly. The complaint says the practice was intended to make the change less noticeable to advertisers. [FTC]

FTC Says Amazon Used The System To Hit Revenue Targets

The complaint alleges Amazon repeatedly adjusted the hidden surcharge as part of efforts to meet advertising-revenue goals. [FTC]

An internal Amazon employee quoted by the FTC described the surcharge as beneficial to Amazon because advertisers had to pay more for the same advertising. [FTC]

Senior Executives Allegedly Discussed The System

The FTC complaint cites a 2024 discussion involving senior Amazon executives. Participants included the head of Amazon Ads and Amazon’s chief digital economist. [FTC]

Notes from that discussion described Amazon’s pricing as a “clever non-transparent way to charge first price.” The same notes called it an “incredibly effective way to drive revenue,” according to the FTC. [FTC]

FTC Accuses Amazon Of Concealing The Change

The lawsuit alleges Amazon understood advertisers would lower their bids if they learned how the system actually worked. [FTC]

Internal documents cited by the FTC warned that disclosure could cause “irrevocable damage to advertiser trust.” [FTC]

Another internal discussion warned of a “downward spiral” in which advertisers would reduce their bids and Amazon would lose substantial advertising revenue. [FTC]

Advertisers Asked Amazon Whether The Auction Had Changed

The complaint alleges some advertisers directly questioned Amazon about its auction format. [FTC Complaint]

The FTC says Amazon employees gave false or misleading responses that allowed advertisers to continue believing they were participating in a standard generalized second-price auction. [FTC]

Advertisers Allegedly Bid Higher Because They Trusted The Second-Price System

Internal Amazon documents cited by the FTC said advertisers were operating under the assumption that Amazon used a GSP auction. [FTC]

Amazon employees allegedly recognized that advertisers believed the company would not simply charge their first-price bid. [FTC]

The FTC says this caused many advertisers to submit bids higher than the amounts they actually expected to pay. [FTC]

States Say Higher Ad Costs Were Passed To Shoppers

The FTC and participating state attorneys general allege merchants passed at least some of their increased advertising expenses on to customers through higher product prices. [FTC] [Pennsylvania AG]

FTC Chairman Andrew Ferguson said the alleged conduct therefore affected both advertising businesses and American consumers. [FTC]

Amazon Denies The Allegations

Amazon rejected the government’s characterization of its advertising auctions. Reuters reported that the company said its advertising policies are designed to show shoppers relevant ads while creating value for businesses buying advertising. [Reuters]

Amazon said average advertiser cost per click was essentially flat between 2019 and 2024. [Reuters]

The company also said sales generated per advertising click increased during that period. [Reuters]

Amazon Rejects Claims Of Consumer Harm

Amazon also disputed the claim that its advertising system resulted in higher prices for shoppers. The company said its pricing approach contradicts allegations of consumer harm. [Reuters]

Amazon said it works to provide low prices across its retail and grocery businesses and to meet or beat prices available from competing retailers. [Reuters]

Amazon’s Advertising Business Has Become Enormous

Amazon has become the third-largest digital advertising company behind Google and Meta. [Financial Times]

Amazon generated approximately $68 billion in advertising revenue during 2025. [Wall Street Journal]

Its advertising business is particularly valuable because ads appear directly alongside products consumers are actively considering purchasing.

The Lawsuit Is Separate From The FTC’s Amazon Monopoly Case

The August 2026 advertising lawsuit is a different proceeding from the FTC’s major antitrust case against Amazon filed in 2023. [FTC]

That earlier case accuses Amazon of using anticompetitive practices to illegally maintain monopoly power in online retail markets. [FTC]

The new case specifically concerns representations made to advertisers and the pricing mechanism used in Amazon’s advertising auctions.

Amazon Previously Paid $2.5 Billion In The Prime Case

Amazon reached a $2.5 billion settlement with the FTC in September 2025 over allegations involving Prime subscriptions. [FTC]

The FTC had accused Amazon of enrolling consumers in Prime without adequate consent and making cancellation unnecessarily difficult. [FTC]

The advertising-auction lawsuit is another independent enforcement action against the company.

Amazon Shares Fall After The Lawsuit

Amazon shares fell approximately 3 percent in trading after the lawsuit was announced. [Reuters]

The case now moves through federal court in Seattle, where Amazon will have the opportunity to formally answer the FTC and states’ allegations. [FTC]