FTC and 22 states sue Amazon over alleged manipulation of ad auction prices

The lawsuit

The US Federal Trade Commission, joined by 22 state attorneys general, has sued Amazon over the way it prices advertising on its shopping site and app. As reported by The Verge, regulators allege the company used what the FTC calls a "secret ad surcharge" to push ad prices above what its own auctions determined, and that the extra costs "were largely passed on to American consumers."

According to the complaint, the conduct violates the FTC Act along with more than a dozen state laws. The suit lands almost a year after Amazon agreed to pay $2.5 billion to settle a separate FTC case over its Prime subscription practices, marking another round of federal pressure on the company.

How the alleged surcharge worked

Amazon sells ad placements through what are known as second-price auctions. Under that model, the winning bidder is supposed to pay just one cent more than the second-highest bid, a design meant to keep advertisers paying close to the market rate instead of their maximum offer.

The FTC claims Amazon has been manipulating those auctions since 2019. Rather than charging the price the auction produced, the complaint says Amazon Ads decided to set higher prices itself, substituting them after the auction had identified the winning and second-place bidders. According to the filing, the replacement prices were designed to maximize Amazon's profits and reduce the cost efficiency of advertisers' campaigns.

The complaint cites an internal explanation attributed to Amazon's Senior Vice President in charge of Amazon Ads, who described how "the second price isn't set by an actual bidder, but rather by" Amazon itself, in the form of a "proxy 2nd price that we calculate."

The FTC estimates the practice "has likely illegally extracted over 20 billion dollars" from advertising customers who were unaware of the mechanism. FTC chairman Andrew Ferguson laid out the agency's position in a blog post accompanying the filing.

Amazon pushes back

Amazon responded publicly, calling the lawsuit "misguided" and arguing that the FTC's claim "fundamentally misunderstands how advertisers behave." The company offered its own pricing data, saying the average winning bid for Sponsored Products search ads fell 50% between 2019 and 2024. It also rejected regulators' assertion that higher advertising costs flowed through to consumers in the form of higher retail prices.

Why it matters

Advertising is one of the main ways large online platforms make money, and the auction mechanics behind ad pricing are largely invisible to the advertisers bidding into them. If the FTC's allegations hold up, they would describe a platform quietly rewriting the rules of its own marketplace in its favor, moving more than $20 billion from advertisers to itself in the process.

The case also reaches beyond advertisers' budgets. Regulators argue that inflated ad costs ultimately landed on ordinary shoppers, since sellers who pay more to reach customers can build those costs into retail prices. Amazon disputes both the overcharging claim and the pass-through argument, so the outcome will likely hinge on evidence from inside Amazon's auction systems.

A ruling or settlement against Amazon could force changes to how its ad auctions operate and set a precedent for how regulators assess pricing transparency across the digital advertising market, where auction-based pricing is the norm.