FTC and 22 states sue Amazon over alleged ad auction inflation
The FTC and 22 states sued Amazon on August 31, 2026, accusing the retail giant of secretly manipulating advertising auctions and collecting more than $20 billion in improper charges from roughly 1.2 million advertisers since 2019. Regulators say sellers believed they were paying fair second-price auction rates. The lawsuit targets Sponsored Products, Sponsored Brands, and Sponsored Display — three ad formats that helped Amazon build one of the largest e-commerce advertising businesses on the internet.
Key Takeaways
- The FTC and attorneys general from 22 states filed suit in the U.S. District Court for the Western District of Washington on August 31, 2026.
- Regulators allege Amazon overcharged about 1.2 million advertisers — including hundreds of thousands of small and midsize businesses — by more than $20 billion since 2019.
- Amazon denies the allegations, calling the lawsuit "misguided," and says advertisers never pay more than their stated bid.
- The FTC is seeking an end to the alleged practices plus penalties, damages, and restitution; nothing has been proven in court yet.
- Regulators warn that inflated ad costs may have been passed on to shoppers through higher product prices.
What did the FTC and states sue Amazon for?
Filed August 31 in federal court in Seattle, the complaint accuses Amazon of systematically overriding auction results to charge advertisers higher prices than competitive bidding would have produced. The Federal Trade Commission says the practice targeted three core ad products: Sponsored Products, Sponsored Brands, and Sponsored Display.
Since 2019, regulators claim, Amazon quietly replaced actual auction outcomes with internally set prices designed to boost profits. The lawsuit involves approximately 1.2 million advertising customers, many of them small and midsize sellers who depend on Amazon's marketplace for visibility and sales.
The FTC alleges the scheme continued for seven years and generated tens of billions of dollars in revenue for Amazon. Regulators also believe at least some of those costs were passed along to consumers through higher product prices.
How did online ad auctions work — then vs. now?
For years, digital advertising operated on a straightforward promise: second-price auctions. Under that model, the highest bidder wins placement, but pays just slightly more than the second-highest bid — not the full amount they offered. Amazon told advertisers it generally used this system, and sellers came to trust that their winning bid was not what they would actually pay.
That transparency mattered. Sellers on Amazon reportedly submitted bids as high as $100 or even $1,000 per click because they trusted the platform would not charge the full amount. Internal documents cited in the complaint suggest Amazon employees knew advertisers believed they were participating in true second-price auctions.
According to the FTC, Amazon began changing the process as early as 2018. Instead of pricing ads based on the runner-up's bid, the company often charged winners according to their own, higher bids — effectively turning a second-price system into something closer to a first-price auction without clearly telling advertisers. One manager allegedly described the strategy as moving away from second-price auctions while "hoping that advertisers don't notice and decrease bids or ad spend."
The shift from open auction mechanics to opaque, platform-controlled pricing mirrors broader changes across the digital economy explored in our Nostalgia: Then & Now coverage — where tools that once felt transparent to users have quietly evolved behind the scenes.
Did Amazon test whether advertisers would notice higher prices?
Yes, according to the complaint. Regulators allege Amazon carefully tested how advertisers reacted to inflated charges before expanding the practice. The company reportedly introduced changes slowly to avoid raising concerns, then monitored whether sellers lowered their bids or reduced ad budgets.
After seeing little change in advertiser behavior, Amazon expanded the price increases, the FTC says. The gradual rollout suggests a deliberate effort to avoid detection rather than a transparent policy update — a contrast with the simpler auction rules Amazon once represented to its advertising customers.
What is Amazon's response to the lawsuit?
Amazon denies the allegations outright and calls the lawsuit "misguided." The company argues that advertisers adjust bids based on real-world performance, not descriptions of auction mechanics, and that its system weighs ad relevance to shoppers rather than automatically selecting the highest bidder.
Amazon estimates its relevance-based approach saved advertisers more than $8 billion from 2021 through 2025. It also points to declining average winning bids for sponsored-product ads, which the company says fell by half between 2019 and 2025, while sales generated by ad clicks increased.
"Advertisers paid the same or less for advertising that delivered increasingly better results," Amazon stated. The company emphasized that "in no scenario does an advertiser pay more than their bid" and said it shared data and explanations of its auction system with the FTC on multiple occasions.
What happens next for Amazon advertisers?
The allegations have not been proven in court, and the case could take years to resolve. The FTC is seeking an injunction to stop the alleged practices, along with penalties, damages, and restitution for affected advertisers.
For the roughly 1.2 million businesses that advertise on Amazon, the central question is whether they understood what they were agreeing to pay — or whether the platform changed the rules without adequate disclosure. That question now rests with a federal judge in Washington state.
The outcome could reshape one of the largest advertising businesses on the internet. Amazon's ad division has grown into a multibillion-dollar operation alongside its retail marketplace, making this lawsuit one of the most significant regulatory challenges the company has faced in recent years.