Amazon Secretly and Systematically Overcharged Advertisers

The U.S. Federal Trade Commission (FTC) and attorneys general from 22 states have sued Amazon, accusing the e-commerce giant of secretly manipulating its online advertising auctions and overcharging millions of advertisers.

The lawsuit, filed August 31, 2026, in federal court in Washington state, alleges that Amazon used undisclosed pricing mechanisms to inflate advertising costs on its platform for more than seven years. According to the FTC, the alleged practices affected approximately 1.2 million advertising customers, including more than 500,000 small and medium-sized businesses.

FTC Says Amazon Changed How Its Ad Auctions Worked

At the center of the case is Amazon’s advertising auction system, which determines how much businesses pay to place ads alongside search results on Amazon.

The FTC alleges that Amazon represented its advertising auctions as a “second-price” system. Under that model, an advertiser generally pays an amount based on the next-highest competing bid rather than simply paying its entire winning bid.

However, regulators claim Amazon secretly changed the system beginning in 2019.

According to the complaint, Amazon introduced an undisclosed “soft reserve price” that allowed the company to override the actual auction outcome and charge advertisers more than the competitive auction would have produced.

The FTC alleges that Amazon’s system increasingly resulted in advertisers paying their full winning bids. For Sponsored Products advertising, the agency says the percentage of auctions in which advertisers paid their own bids rose from roughly 30%–40% in 2021 to about 80% in 2024.

More Than $20 Billion in Alleged Overcharges

The FTC says Amazon’s alleged pricing practices generated tens of billions of dollars in additional revenue.

Some reports citing the lawsuit put the alleged overcharges at more than $20 billion. The FTC itself describes the amount as potentially tens of billions of dollars extracted from advertisers through the alleged scheme.

The agency says the alleged practice affected advertising products including Sponsored Products, Sponsored Brands and Display Ads.

These advertising products are particularly important for businesses selling products through Amazon because paid placement can determine how prominently products appear when customers search for keywords.

Small Businesses Could Be Among Those Affected

The lawsuit could have significant implications for smaller Amazon sellers.

The FTC says more than 500,000 small and medium-sized businesses were among the advertisers participating in the auctions covered by the complaint.

For sellers operating with tight profit margins, higher advertising costs can directly affect profitability. Increased advertising expenses can also lead businesses to raise product prices, reduce marketing budgets or accept lower margins.

The FTC argues that some of those additional advertising costs were ultimately passed on to consumers through higher prices.

Alleged Secret Pricing During Major Shopping Events

The complaint also alleges that Amazon adjusted its advertising surcharges depending on shopping conditions.

According to the FTC, the company increased the alleged surcharges on ordinary shopping days and applied larger increases during high-volume periods such as Prime Day and Black Friday.

Regulators argue that these practices allowed Amazon to extract additional advertising revenue at times when businesses were particularly dependent on visibility and customer traffic.

The complaint further alleges that Amazon monitored advertiser behavior and adjusted the pricing system to increase revenue without triggering significant advertiser backlash.

FTC Claims Amazon Hid the Changes

A major part of the government’s case concerns transparency.

The FTC alleges that Amazon knew advertisers believed they were participating in genuine second-price auctions and deliberately concealed the changes to its pricing system.

The complaint cites internal Amazon documents and communications that regulators say show concerns about revealing the pricing mechanism to advertisers.

According to the FTC, Amazon feared that advertisers would reduce their bids if they discovered that the auction was not operating as they expected.

The agency argues that this alleged lack of transparency was central to the scheme because advertisers continued bidding under the assumption that the auction rules were different from how Amazon was actually calculating prices.

Amazon Rejects the Allegations

Amazon has strongly denied the FTC’s accusations.

The company has described the lawsuit as misguided and disputed the government’s characterization of its advertising auction system. Amazon has argued that its advertising business provides value to sellers and that advertising costs have not increased in the manner alleged by regulators.

Amazon has also pointed to improvements in advertising performance and said average winning bids declined substantially between 2019 and 2024.

The company’s position sets up a major legal dispute over how digital advertising auctions should be interpreted and whether Amazon’s pricing mechanisms amounted to deceptive conduct.

Amazon’s Growing Advertising Business Faces New Scrutiny

The lawsuit comes as advertising has become an increasingly important part of Amazon’s business.

Amazon’s advertising operation has grown into one of the world’s largest digital advertising businesses, generating tens of billions of dollars annually.

That growth has attracted increasing attention from regulators and competitors as Amazon’s marketplace, advertising platform and seller ecosystem have become increasingly interconnected.

The FTC’s latest action represents another major regulatory challenge for the company. Amazon previously agreed in 2025 to pay $2.5 billion to resolve FTC allegations involving deceptive practices related to Prime subscriptions.

What Happens Next?

The lawsuit was filed in the U.S. District Court for the Western District of Washington and remains pending. The FTC and participating states are seeking monetary relief and court orders aimed at stopping the alleged practices.

Amazon will have an opportunity to contest the allegations in court. The lawsuit does not establish that Amazon violated the law; those allegations will have to be tested through the legal process.

For Amazon sellers and advertisers, however, the case could become highly significant. A ruling against Amazon could potentially affect how advertising auctions are structured, how pricing is disclosed and how businesses evaluate the costs of sponsored placements.

The broader issue extends beyond Amazon. Digital advertising increasingly relies on automated auctions to determine which ads consumers see and how much advertisers pay. The case could therefore become an important test of how transparent those systems must be when the platform operating the auction also benefits financially from higher prices.

Key Takeaways

• The FTC and 22 states have sued Amazon over its advertising auction practices.
• Regulators allege Amazon secretly inflated advertising prices beginning in 2019.
• The complaint involves approximately 1.2 million advertising customers.
• More than 500,000 small and medium-sized businesses were allegedly affected.
• The FTC says the alleged scheme generated tens of billions of dollars in additional revenue.
• Amazon denies wrongdoing and disputes the government’s characterization of its advertising system.
• The lawsuit is now pending in federal court in Washington state.

Bottom line: The FTC’s lawsuit puts Amazon’s advertising auction system under intense regulatory scrutiny. If the allegations are ultimately proven, the case could have major consequences for Amazon, its sellers and the broader digital advertising industry.