FTC and 22 states sue Amazon over advertising auctions

The U.S. Federal Trade Commission (FTC) together with 22 states has filed a lawsuit against Amazon, accusing the company of covertly inflating the cost of advertising on its platform. According to the regulator, over several years this system could have brought Amazon tens of billions of dollars in additional payments from advertisers.

The lawsuit was filed in the federal court for the Western District of Washington. Joined by the FTC are the attorneys general of California, New York, Florida, Illinois, New Jersey, Washington and 16 other states. The plaintiffs demand the cessation of the contested practice, as well as financial compensation and other measures provided by law.

At the center of the case are the auctions through which brands and sellers purchase advertising placements in Amazon's search results. This includes, among others, the Sponsored Products, Sponsored Brands and Display Ads formats. According to the FTC, these advertising tools are used by more than one million brands and sellers, including more than 500,000 small and medium-sized companies.

The regulator claims that for years Amazon presented its system as a "second-price" auction: the winner had to pay not the entire amount they bid, but only slightly more than the next participant's bid. This principle allows advertisers to set their maximum bid without fearing that they will automatically have to pay it in full.

However, according to the FTC, since 2019 Amazon began using an additional mechanism, internally called soft reserve price. It effectively set a hidden minimum price for the advertising placement and could raise the amount the auction winner had to pay above the level determined by competition among advertisers.

The FTC claims that as a result of this mechanism, advertisers increasingly often ended up paying the full amount of their own bid. For Sponsored Products advertising, the share of such cases, according to the lawsuit, was 30-40% in 2021, about 70% in 2022, and approximately 80% in 2024. The surcharges could increase especially on high-demand days, such as Prime Day and Black Friday. 

The California Attorney General's office estimates the hidden surcharges received by Amazon from advertising clients at over $20 billion. The FTC speaks of tens of billions of dollars in revenue that, according to the regulator, were obtained thanks to this system.

Amazon denies the accusations. The company called the lawsuit erroneous and stated that reserve prices are a common mechanism in the advertising industry, and that an advertiser never pays more than the maximum bid they set. Amazon also claims that its system increasingly takes into account ad relevance, not just the bid amount.

According to Amazon's own data, the average winning bid for Sponsored Products decreased by about half from 2019 to 2025, and the average cost per click in 2019-2024 remained roughly unchanged when adjusted for inflation. The company also states that in 2024, about 92% of selected ads did not have the highest bid among auction participants. Amazon intends to defend its position in court.

Based on materials from: Federal Trade Commission, California Attorney General, The Wall Street Journal