Amazon secretly overcharged more than one million advertising customers by manipulating the auctions used to determine the cost of online advertisements, according to a lawsuit filed by the US Federal Trade Commission and 22 states.
The complaint, filed on Monday in Washington state, alleges that Amazon’s practices generated about $20 billion in additional revenue from advertisers since 2019. The FTC claims the company replaced the results of its advertising auctions with higher prices to increase its profits.
Amazon strongly rejected the allegations, describing the lawsuit as misguided and saying the regulator had misunderstood how advertisers use its platform.
The case focuses on Sponsored Products and Sponsored Brands advertisements, which appear when shoppers search for products on Amazon. Businesses compete for these placements through online auctions, with advertisers submitting bids for specific keywords.
According to the lawsuit, Amazon secretly altered the pricing system used for so-called second-price auctions. Under the system, the winning advertiser would generally expect to pay slightly more than the next highest bid rather than its full winning bid.
The FTC alleges that Amazon instead charged Sponsored Products advertisers their full winning bids nearly 80% of the time. The regulator claims the company adopted the practice because it believed its advertising auctions were generating insufficient revenue.
FTC Chairman Andrew Ferguson said millions of advertising customers were misled into paying substantially higher prices. More than 500,000 small and medium-sized businesses are among the advertisers the agency believes were affected.
Amazon disputed the claims, saying advertisers make decisions based on the performance of their advertising campaigns rather than the auction rules described by the FTC.
The company said average winning bids for Sponsored Products search advertisements fell by 50% between 2019 and 2025. It also said about 92% of advertisements placed on the platform were not awarded to the highest bidder.
The lawsuit also argues that consumers were harmed because businesses can pass higher advertising expenses on to shoppers through increased product prices. Amazon rejected that argument, saying the case was not about higher consumer prices.
Amazon shares fell after the lawsuit was announced, closing 2.5% lower on Monday.
The case could have wider implications for businesses that depend on Amazon to reach customers. Small and medium-sized sellers have increasingly raised concerns about the costs associated with advertising and selling on the platform.
In the UK, more than 200,000 third-party sellers are pursuing a £2.7 billion legal claim against Amazon at the Competition Appeal Tribunal, alleging the company abused its dominant market position.
The latest US lawsuit adds to a long-running dispute between Amazon and the FTC. The regulator and several states have previously accused the company of using its market power to keep prices high and penalise sellers offering lower prices elsewhere.
Amazon also paid $2.5 billion last year to settle FTC allegations concerning its Prime subscription practices. The settlement included civil penalties and refunds for consumers.
