Amazon Accused of Secretly Adding More Than $20 Billion to Ad Costs—FTC and 22 States Sue

SEATTLE — The ads that appear beside Amazon search results are sold through auctions that advertisers were told would reward the highest bidder at a competitive price. Federal and state regulators now allege Amazon secretly changed those auctions—and extracted more than $20 billion in additional costs from the businesses buying the ads.

The Federal Trade Commission and attorneys general from 22 states filed a lawsuit against Amazon on Monday, August 31, 2026, in the U.S. District Court for the Western District of Washington. The bipartisan coalition accuses the company of misleading approximately 1.2 million advertising customers, including more than 500,000 small and medium-sized businesses.

Amazon denies the allegations. In its formal response, the company called the case misguided and said regulators fundamentally misunderstood how its advertising auctions work. The claims have not been proven in court.

How the alleged hidden price floor worked

Brands and marketplace sellers bid for Sponsored Products, Sponsored Brands and Sponsored Display placements that appear when customers search Amazon’s website or mobile app. According to the government’s 181-page complaint, Amazon publicly described the process as a generalized second-price auction.

In a conventional second-price auction, the top bidder wins but generally pays only slightly more than the second-highest bid. That difference matters: advertisers can bid what an ad placement is worth to them without expecting to pay their entire maximum bid every time.

The FTC alleges that Amazon began adding an undisclosed mechanism internally described as a “soft reserve price” in 2019. Rather than allowing competing advertisers alone to determine the second price, the complaint says Amazon inserted its own higher proxy price. Regulators contend that this turned many auctions into something much closer to first-price auctions, where the winner pays its full bid.

For Sponsored Products—Amazon’s largest advertising format—the FTC says winning advertisers were charged their own bids nearly 80% of the time. The complaint describes internal documents that referred to a hidden surcharge and alleges that the added charges were increased on high-volume shopping days.

Why a dispute over ads could reach shoppers

The case is not limited to large national brands. Hundreds of thousands of smaller sellers depend on Amazon advertising to make their products visible inside one of the world’s largest online marketplaces. Regulators argue that when those businesses pay more to reach customers, some of the expense can eventually appear in product prices.

The lawsuit alleges that Amazon’s auction changes extracted more than $20 billion from advertisers over seven years. Reuters reported that the government is seeking tens of billions of dollars in monetary relief, along with an order stopping any unlawful practices and possible civil penalties.

Amazon’s advertising operation has become one of its most valuable businesses. Reuters reported that it generated $68.6 billion in sales during 2025, making Amazon the third-largest digital advertising platform behind Google and Meta.

Amazon says advertisers received better value

Amazon says the government selected isolated internal communications and built a misleading account of its pricing system. The company maintains that the average cost per click remained essentially flat between 2019 and 2024 while the sales attributed to those ads increased. It also says its pricing methods saved advertisers billions of dollars between 2021 and 2025.

In other words, regulators and Amazon are presenting fundamentally different versions of the same auction. The FTC says advertisers were promised one pricing system and quietly charged under another. Amazon says its approach improved relevance and value without harming consumers.

What happens next

The lawsuit must now move through federal court, where Amazon will have an opportunity to challenge the complaint and its calculations. No refunds have been approved, and affected advertisers do not need to submit claims at this stage.

The case could have consequences beyond Amazon. Digital ad auctions determine which products millions of shoppers see first, yet their mechanics are largely invisible to the businesses paying for placements and the consumers viewing them. The court will now examine whether Amazon merely optimized those auctions—or unlawfully concealed a price-setting system that generated billions in additional revenue.