Amazon is facing a lawsuit from the Federal Trade Commission (FTC) and 22 states, accusing the company of secretly charging businesses more for advertising on its platform. The lawsuit, filed on August 28, 2026, claims that Amazon spent over seven years increasing the prices advertisers paid through its online ad auctions. According to the complaint, this alleged practice impacted more than 1 million brands and sellers and may have generated tens of billions of dollars in additional revenue for Amazon.
The states joining the FTC in the lawsuit include 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 focuses on Amazon’s Sponsored Products ads, Sponsored Brands ads, and Display ads that appear alongside its search results. The FTC claims that Amazon informed over 500,000 small and medium-sized businesses that it operated a “second-price” auction, where the winning advertiser would pay just one cent more than the next-highest bid. This led businesses to believe they would only pay slightly more than the runner-up, encouraging them to bid high under the assumption that their actual costs would remain low.
However, the FTC alleges that starting in 2019, Amazon implemented a change without notifying advertisers. The company allegedly added a hidden surcharge, referred to internally as a “soft reserve price,” and utilized what an internal document described as an “invented auction participant” — essentially a fake bidder — to inflate prices beyond what true competition would yield.
The complaint claims this constituted a shill bid, as the price was not determined by a real competing advertiser, but rather manufactured by Amazon to create a higher target for advertisers. Consequently, the FTC asserts that Amazon charged Sponsored Products advertisers their full winning bid nearly 80% of the time, effectively converting what was marketed as a second-price auction into a first-price auction.
The FTC contends that Amazon made this change to increase advertising revenue while keeping it hidden to prevent advertisers from lowering their bids, which would have reduced that revenue. Amazon reported over $68 billion in advertising revenue last year.
In response to the lawsuit, Amazon characterized the FTC’s claims as “misguided,” asserting that the complaint “fundamentally misunderstands how advertisers operate.” The company stated that its auctions assess billions of bids across various placements and formats, resulting in natural price variations, and that advertisers are “properly” informed about the pricing system.