FTC and 22 states sue Amazon over hidden advertising surcharges

The Federal Trade Commission and attorneys general from 22 states sued Amazon on Monday, accusing the company of secretly manipulating its advertising auctions to overcharge more than a million brands and sellers, including at least 500,000 small and medium-sized businesses.

The complaint, filed in US District Court for the Western District of Washington, alleges that Amazon told advertisers it ran a "second-price" auction, in which the winning bidder pays only slightly more than the next-highest bid, while secretly inserting an undisclosed "soft reserve price" that functioned as a hidden price floor. According to the FTC's press release, the changes began in 2019, and by 2024 advertisers were paying their own bid roughly 80% of the time, up from 30% to 40% in 2021, effectively converting the auction into a first-price system without telling customers.

Regulators say the scheme extracted "tens of billions of dollars" from advertisers over seven years. The complaint cites internal Amazon documents that reportedly referred to an "invented auction participant" and described the approach as a "clever non-transparent way to charge first price." FTC Chairman Andrew Ferguson said in a statement that "Amazon has millions of advertising customers who were misled into paying significantly higher prices." The commission voted 2-0 to authorize the suit, which seeks both financial penalties and a court order barring Amazon from continuing the alleged practice. The FTC said the auction changes hit small businesses hardest, since they often lack the scale or in-house analytics teams larger advertisers use to detect gradually rising minimum bids.

Amazon rejected the allegations in a lengthy statement posted to its newsroom, calling the lawsuit "misguided" and arguing regulators "fundamentally misunderstand how advertisers operate," since advertisers set bids based on real-world performance rather than auction mechanics. The company said its average cost-per-click for Sponsored Products ads has stayed flat, adjusted for inflation, from 2019 through 2024, while ad conversion rates rose 24% over roughly the same period — meaning, Amazon argued, that advertisers got more value for the same spending. The company estimated advertisers saved more than $8 billion from 2021 to 2025 as a result of its ad-ranking approach.

The suit adds to a run of regulatory battles between Amazon and the FTC, which previously accused the company of enrolling customers into Prime through deceptive design and made it deliberately difficult to cancel, a case that ended with Amazon agreeing to pay a multibillion-dollar settlement. Advertising has become one of Amazon's fastest-growing and most profitable divisions in recent years, generating tens of billions of dollars annually as sellers compete for visibility on product search pages, which regulators say gave the company outsized leverage to quietly raise prices without losing customers who had few alternative platforms to reach Amazon's shopper base.

Amazon's shares dipped in Monday trading as news of the suit spread, extending a decline that began after a separate report the FTC was preparing the case. The case is expected to take years to resolve and could result in financial penalties as well as changes to how Amazon discloses its ad-auction mechanics to customers, a point CNN's coverage noted regulators are treating as a template for scrutinizing other tech ad platforms.