FTC sues Amazon, alleging it overcharged advertisers

FTC and 22 States Take Amazon to Court Over Alleged Ad Auction Manipulation

Sandego.net – The Federal Trade Commission, joined by attorneys general from 22 states, filed a sweeping lawsuit on Monday accusing Amazon of systematically inflating what advertisers pay to place promotions across its retail marketplace. At the center of the complaint is a claim that the company quietly altered the mechanics of its own bidding auctions beginning in 2018, causing roughly 1.2 million businesses to pay far more than they intended for ad placements. The alleged overcharges, according to the filing, totaled more than $20 billion over several years.

The action marks the third major federal enforcement case the FTC has brought against the e-commerce giant since 2023, underscoring how deeply regulators now scrutinize Amazon’s commercial practices across multiple fronts — from subscription enrollment to data retention to, now, advertising economics.

How the Alleged Scheme Worked

Amazon’s advertising marketplace operates on an auction model familiar to digital marketers: companies submit bids for specific ad slots and formats, and the highest bidder wins the placement. Under standard auction theory, the winner pays only one cent above the second-highest bid — a mechanism designed to keep prices efficient and transparent.

The FTC’s complaint alleges that starting in 2018, Amazon departed from that framework. The agency points to what it describes as a concealed surcharge layered onto winning bids, as well as the insertion of artificial competing bids designed to push prices higher than genuine market demand would justify. Together, these practices, the filing argues, allowed the company to extract billions in excess revenue from advertisers who believed they were participating in a fair auction.

Nearly half of the 1.2 million affected advertisers were small or medium-sized enterprises, according to the lawsuit. The FTC further contends that the inflated ad costs were ultimately embedded in product prices, meaning ordinary shoppers bore a portion of the financial burden.

Amazon’s Pushback

In a detailed statement of roughly 3,000 words, Amazon rejected the complaint outright, calling it “misguided” and saying the company “strongly disagrees” with its core premise.

“The FTC’s claim fundamentally misunderstands how advertisers operate,” Amazon stated. “Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics. Even accepting the FTC’s flawed premise that advertisers do not adjust bids, we estimate they saved over $8 billion from 2021 to 2025 as a result of Amazon prioritizing ad relevancy over selecting ads on bid price alone.”

The company also asserted that it had provided its internal data to the FTC “on multiple occasions,” while accusing the agency of showing “little interest in engaging with the facts” and appearing “more focused on trying to secure some sort of monetary victory.”

Why the Auction Question Matters

Auction-based ad buying is a cornerstone of digital advertising, from programmatic display networks to search-engine bidding. Its integrity depends on platforms following well-established rules that keep the process competitive and predictable. Vamsi Kanuri, a marketing professor and strategist at the University of Notre Dame, noted in a written comment that the system “relies entirely on platforms strictly adhering to well-established rules.” If a dominant platform can quietly rewrite those rules in its own favor, the competitive assumptions that protect advertisers — particularly smaller firms with limited negotiating leverage — collapse.

Amazon’s scale compounds the concern. The company generated approximately $927.82 billion in worldwide retail e-commerce sales this year, according to Emarketer principal analyst Zak Stambor. That magnitude of commerce makes the platform effectively indispensable for many sellers.

“Advertisers face a tough challenge because Amazon is incredibly hard to walk away from,” Stambor observed.

In other words, even if auction mechanics were imperfect, advertisers may lack a realistic alternative venue to reach Amazon’s shopper base, weakening their ability to contest pricing terms.

A Pattern of Federal Enforcement

The advertising lawsuit arrives against a backdrop of escalating FTC action against Amazon. In 2024, the company settled a case first filed in 2023 under the Biden administration for a record $2.5 billion, resolving allegations that it tricked consumers into Prime subscriptions and then made cancellation deliberately difficult. Amazon agreed to pay a $1 billion civil penalty — the largest ever imposed for an FTC rule violation — plus $1.5 billion in refunds to an estimated 35 million customers deemed “harmed by their deceptive Prime enrollment practices.”

Separately, in 2023, Amazon resolved FTC claims totaling more than $30 million over user-privacy violations tied to its Alexa voice assistant and Ring doorbell cameras, which were accused of retaining users’ videos, voice recordings, and geolocation data for years. Amazon denied wrongdoing in both matters.

Now, with the advertising case, regulators are extending their scrutiny into the revenue stream that has made Amazon the third-largest advertising platform in the United States — a position it first reached in 2018, the same year the FTC alleges the auction manipulation began. The convergence of timing is unlikely to escape notice in the coming litigation.

The FTC did not immediately respond to requests for additional comment on the filing’s specifics. The case is expected to proceed through federal court, where both sides will present evidence on auction mechanics, advertiser behavior, and the financial flows at issue.