The Federal Trade Commission and 22 state attorneys general sued Amazon on Monday, accusing the company of secretly rewriting the mechanics of its advertising auctions to extract what the government calls "tens of billions of dollars" from more than a million brands and sellers over the past seven years. The 181-page complaint, filed in U.S. District Court for the Western District of Washington in Seattle, is one of the largest advertiser-protection actions ever brought against a single company and lands squarely on the fastest-growing, highest-margin part of Amazon's business.
At issue is Sponsored Products, the auction system that determines which paid listings appear atop Amazon's search results. According to the complaint, Amazon spent years telling advertisers the auction was a "generalized second-price" mechanism, in which the winning bidder pays only slightly more than the next-highest bid — a structure designed, in theory, to keep prices honest. Regulators allege that behind the scenes, Amazon inserted a hidden "soft reserve price" and used what the complaint characterizes as "invented auction participants" to push winners closer to their own maximum bids. The government says the share of winning Sponsored Products clicks in which advertisers paid their own full maximum bid — rather than a price set by competition — climbed from roughly 4% in 2020 to as much as 80% by 2024.
How the case is framed
The FTC and the states allege Amazon actively concealed the change and gave "false and misleading answers" when advertisers asked directly how the auction worked. More than 1.2 million advertising customers were affected, the agency said in its announcement, including more than 500,000 small and medium-sized businesses that had little leverage to negotiate or walk away from Amazon's marketplace.
"When one of the world's largest online retailers engages in unfair and deceptive conduct, the impact can be staggering. Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers."
FTC Chairman Andrew N. Ferguson
The suit is the latest in a string of federal actions against Amazon's core business practices, following a 2025 settlement over "dark pattern" Prime sign-up and cancellation flows, and it arrives as antitrust regulators on both sides of the aisle have kept large technology platforms under sustained scrutiny. Advertising has become one of Amazon's most important profit engines, growing far faster than its retail and cloud units in recent years and giving the company outsized influence over how millions of merchants price and market their products.
Amazon has rejected the allegations in blunt terms. In a statement posted to its corporate newsroom, the company said it "strongly disagrees" with the claims and argued the government's complaint "cites no evidence of consumer price increases." Amazon said the average cost per click for Sponsored Products was flat on an inflation-adjusted basis from 2019 through 2024 even as advertiser conversion rates rose 24% over the 2021-2025 period, and that average winning bids actually fell by half over the same span because the system increasingly favors ad relevance over raw bid size. The company put a number on the benefit it says advertisers received: more than $8 billion in savings from 2021 to 2025.
"We look forward to making our case in court."
Amazon spokesperson
Investors treated the filing as a real, if contained, risk. Amazon shares fell roughly 2.5% to 3% in the sessions following the lawsuit, reflecting concern about potential damages and the possibility that a court could force changes to an auction system that generates tens of billions of dollars a year. Wall Street's reaction was not uniformly bearish, however: Citi analysts kept Amazon as their top pick with a "Buy" rating and a $350 price target, calling the pullback a buying opportunity and noting that advertiser spending and AWS demand tied to artificial intelligence remain intact regardless of how the litigation unfolds, according to a note reported by Yahoo Finance.
What happens next will likely play out over years rather than weeks. The FTC and its state co-plaintiffs are seeking injunctive relief and, potentially, disgorgement of profits tied to the alleged scheme — remedies that in a case of this size could run into the billions of dollars if Amazon loses or settles. Amazon has signaled it intends to fight the case in court rather than negotiate an early settlement, setting up a lengthy discovery process that will scrutinize internal auction design documents and communications with advertisers dating back to 2019. For the small businesses at the center of the complaint, the immediate practical effect is limited — Sponsored Products auctions continue to run as before — but the case will be closely watched by rival retail-media platforms operated by Walmart, Target and others now facing similar scrutiny over how their own ad auctions are described to customers.
