Amazon is facing a major legal challenge in the United States after the Federal Trade Commission (FTC) and 22 states accused the e-commerce giant of secretly inflating the prices businesses paid to advertise on its platform.
The lawsuit, filed in federal court in Washington state on Monday, alleges that Amazon manipulated its online advertising auctions for more than seven years, causing more than 1.2 million advertisers to pay higher prices than they should have.
According to the FTC, the alleged practices could have generated more than $20 billion for Amazon since 2019.
The case centres on advertisements that appear alongside Amazon search results, including Sponsored Products, Sponsored Brands and Display Ads. Advertisers bid for these placements, with the auction system determining how much they pay to have their products promoted.
Regulators allege that Amazon publicly presented these as “second-price” auctions, under which the winning advertiser would normally pay only slightly more than the next-highest competing bid.
However, the FTC claims Amazon introduced an undisclosed surcharge that allowed it to raise the amount advertisers paid.
The regulator alleges that by 2024, advertisers were paying their full winning bids in about 80% of Sponsored Products auctions, despite Amazon’s representations about how its auction system worked.
Regulators say shoppers could ultimately pay the price
Although the immediate alleged victims are businesses purchasing advertising, US regulators argue that the consequences could extend to consumers.
The FTC says higher advertising costs can increase the expenses businesses incur when selling products on Amazon. Those businesses may subsequently pass some of those costs on to shoppers through higher prices.
FTC Chairman Andrew Ferguson said the scale of Amazon’s business meant that alleged deceptive practices could have widespread consequences.
When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering,” Ferguson said.
The lawsuit also alleges that more than 500,000 small and medium-sized businesses were among the advertisers affected by the system.
Amazon rejects the allegations
Amazon has strongly disputed the government’s case and described the lawsuit as misguided.
The company argues that the FTC’s interpretation of its advertising system does not reflect how its marketplace operates. Amazon says its advertising model prioritises the relevance and performance of advertisements rather than simply awarding placements to whoever submits the highest bid.
The company also says the average cost-per-click for its Sponsored Products search advertisements remained flat between 2019 and 2024 after adjusting for inflation.
Amazon further claims that advertisers saved more than $8 billion between 2021 and 2025 because of improvements to its advertising system. It says average winning bids for Sponsored Products search ads fell by 50% between 2019 and 2025.
“The FTC’s claim fundamentally misunderstands how advertisers operate,” Amazon said in its response to the lawsuit.
The company also rejected the suggestion that its advertising practices had harmed consumers, arguing that its retail model continues to offer competitive prices.
Another legal battle for Amazon
The advertising case adds to growing regulatory pressure on Amazon in the United States.
The company agreed last year to pay $2.5 billion to resolve an FTC case involving allegations that it used deceptive practices to enrol consumers in its Prime subscription service.
Amazon is also facing a separate antitrust case brought by the FTC concerning its marketplace practices.
The latest lawsuit could nevertheless have particular significance for the digital advertising industry because it challenges the way one of the world’s largest online marketplaces determines the price advertisers pay to reach consumers.
Amazon generated $68.6 billion in advertising revenue in 2025, making it the world’s third-largest digital advertising company behind Google and Meta, according to Reuters. Its advertising revenue rose 26% year-on-year to $19.8 billion in the second quarter of 2026.
Amazon’s shares fell about 2.5% after news of the lawsuit emerged on Monday.
The lawsuit is now before the US District Court for the Western District of Washington. The allegations have not been proven in court, and the case is expected to face a lengthy legal process as Amazon challenges the government’s claims.
