The Federal Trade Commission and 22 states sued Amazon yesterday, alleging that it has conducted a secret scheme to overcharge advertisers for seven years.
“Since 2019, Amazon.com, Inc. has secretly and systematically overcharged its approximately 1.2 million advertising customers by manipulating the ‘auctions’ that it uses to set the price of ads on its platform,” the lawsuit said. “Amazon represents, and advertisers believe, that competitive auctions set the prices for advertising on its leading e-commerce website. But, in reality, Amazon overrides and replaces the actual auction results with higher prices set by Amazon to increase its profits.”
The FTC said it obtained internal documents and messages that reveal how Amazon secretly inflated auction prices for Sponsored Products, Sponsored Brands, and Sponsored Display advertisements that appear alongside results seen by consumers when they search for a product. The FTC investigation began in 2024.
“Based on numerous internal documents describing its ‘hidden’ ‘surcharges,’ Amazon’s scheme has likely illegally extracted over $20 billion from its unwitting advertising customers,” according to the lawsuit filed in US District Court for the Western District of Washington.
The FTC lawsuit was joined by a bipartisan group of 22 state attorneys general from Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont, and Washington.
The lawsuit said Amazon has conducted “billions of rigged auctions,” imposing “hidden surcharges on advertisers almost every time a shopper clicks on an advertisement on the Amazon website. Amazon’s deception continues to this day” and deprives customers “of the benefits of competition and fair and transparent dealing,” the FTC said.
Amazon says “FTC cherry-picked” details
The FTC and states are seeking a permanent injunction to change Amazon’s practices along with civil penalties, restitution, disgorgement, and other monetary relief. Amazon reported $200.6 billion in net sales in Q2 2026 and a net income of $62.6 billion.
Amazon yesterday issued a response that said the FTC lawsuit is “misguided.” Amazon did not dispute key claims about the mechanics of its ad auctions, but said its system did not harm consumers or advertisers.
“After reviewing approximately 1.5 million pages spanning six years, the FTC leans on a handful of simplified communications to allege a companywide effort to deceive. That is patently false,” Amazon said. It also said “the FTC cherry-picked a small number of materials, such as a few online educational videos and training content that contained older or simplified examples about how our auctions are run.”
An FTC press release said that Amazon tells potential ad buyers that it “runs ‘second price’ auctions where the winner of the auction would only pay ‘one cent more than the next highest bidder’ for each successful bid for an advertising keyword.” This “generalized second-price, or GSP auction” is an industry standard for digital ad placements, the FTC said.
Amazon has run GSP auctions since 2012, but in 2019, it started adding an undisclosed surcharge that it internally calls a “soft reserve price,” causing advertisers to pay more than the price determined by the auction, the FTC said.
The FTC quoted an Amazon senior scientist as explaining that Amazon raises prices by using “an invented auction participant representing how much Amazon thinks that particular ad slot is worth.” An Amazon senior VP in charge of ads said internally that in Amazon’s auctions, “the second price isn’t set by an actual bidder, but rather by” Amazon itself with a “proxy 2nd price that we calculate,” the lawsuit said.
“We don’t tell them about the surcharge”
Amazon kept the use of soft reserve prices secret, even from its own sales and marketing employees in charge of interacting with advertisers, and designed the system to be undetectable by advertisers, the FTC said. Amazon did not mention reserve pricing on its website until October 30, 2025, “almost a year after learning of the FTC’s investigation,” the lawsuit said.
The lawsuit quoted an Amazon employee as writing in a 2024 message, “We don’t tell them about the surcharge, we let them assume [it is] GSP-based.” The employee who wrote this “had helped conduct a large-scale pricing experiment that concluded that Amazon could increase surcharges without fear of detection by advertisers,” the lawsuit alleged.
Amazon’s response acknowledged that it uses reserve prices, saying it implemented the system because “relevant ads [were] increasingly winning at prices below market value.” A soft reserve price is “a real-time minimum value that seeks to better reflect what each placement is actually worth” and “represent[s] what we estimate to be the true market value of the ad placement,” Amazon said.
Amazon also sets a “hard reserve” price. Amazon said this is the minimum a bid must surpass to enter an auction and helps cover the company’s costs.
“Our auction looks at a combination of which ad is most relevant to the customer and the price an advertiser is willing to pay,” Amazon said. “Here’s how it works: Advertisers bid a maximum price for a placement. When the winning advertiser’s bid exceeds both the hard and soft reserve, they pay the soft reserve, which is less than they were willing to pay. When the winning advertiser’s bid exceeds the hard reserve but doesn’t meet the soft reserve, we still grant the placement to that advertiser and they pay their bid. In no scenario does an advertiser pay more than their bid.”
FTC: Amazon still “fails to clearly” disclose system
On an Amazon Ads auctions webpage last updated in April 2026, Amazon notes that reserve pricing may affect the cost of ads and “help allocate ad space by setting a bid threshold.” The FTC said that while Amazon’s website was updated to disclose reserve pricing, it still “fails to clearly and conspicuously disclose the nature, scope, and extent of Amazon’s secret reserve pricing systems that have been in place since 2018.”
Much of Amazon’s public defense relies on an assertion that its ad prices haven’t risen significantly. Amazon said that “from 2019 through 2024, the average cost-per-click to advertisers remained flat when adjusted for inflation.” Since advertisers didn’t have to pay more, there were no price increases to be passed on to consumers, Amazon argued.
Amazon also said 92 percent of Sponsored Products ads are not given to the highest bidder because the company selects winners based on a combination of price and relevancy to the keyword search. Amazon claimed that between 2021 and 2025, advertisers saved over $8 billion “as a result of Amazon incorporating ad relevancy into our auction versus selecting ads on bid alone.”
The FTC says customers paid more than they would have if Amazon operated the auction in the way it claimed it did. “These inflated advertising charges allow Amazon to extract additional revenue from sellers on its platform, on top of the account fees, referral fees, and fulfillment and storage fees that increasingly both cut into Amazon sellers’ profit margins and lead to price increases borne by Amazon shoppers,” the lawsuit said.
Jon Brodkin Senior IT Reporter
Jon is a Senior IT Reporter for Ars Technica. He covers the telecom industry, Federal Communications Commission rulemakings, broadband consumer affairs, court cases, and government regulation of the tech industry.
