What just happened? Amazon's ad business is under fresh scrutiny over how it priced ads sold to merchants on its marketplace. The Federal Trade Commission and 22 states sued Amazon on Monday, accusing the company of making undisclosed changes to its ad-auction system that caused advertisers to pay more than they expected. The lawsuit says the practice affected about 1.2 million advertisers and generated more than $20 billion in additional charges.
The case involves Sponsored Products, Sponsored Brands, and Sponsored Display ads, which appear in search results and on product pages across Amazon's website and app. Sellers use these ads to put their products in front of shoppers who are already searching for similar items.
Amazon typically sells those ads through an auction. Under the standard second-price model described in the lawsuit, the highest bidder wins an ad placement but pays only a cent more than the second-highest bidder. If one company bids $15 and another bids $12, the winning advertiser would normally pay $12.01.
The FTC says Amazon changed that process in 2018. Rather than relying solely on the second-highest bid, the company allegedly used an internal pricing tool called a "soft reserve" to raise the final price after the auction.
According to the complaint, Amazon's system set a higher minimum price for some ads after bidding had ended. The complaint says Amazon employees referred to those changes as "post-hoc pricing adjustments" and noted that "[a]dvertisers may not be expecting" them.
– Andrew Ferguson (@AFergusonFTC) August 31, 2026
The FTC alleges that Amazon increasingly used the approach in recent years, affecting 70% to 80% of auctions. It also says the company imposed larger surcharges during major shopping periods, including the holiday season.
Amazon disputes the claims. In a statement, the company said the lawsuit is based on an incorrect understanding of how advertisers make decisions.
"The FTC's claim fundamentally misunderstands how advertisers operate," Amazon said. "Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics."
The company said advertisers focus on results such as sales and conversion rates rather than solely on the technical structure of an auction. It also said its ad system does not simply award placements to the highest bidder. About 92% of ads are not shown to the highest bidder, Amazon said, because the company considers relevance when deciding which ad to serve.
The company said those relevance changes benefited advertisers. Amazon said advertisers saved more than $8 billion between 2021 and 2025 because its system prioritized relevant ads rather than relying solely on bid prices. It also said inflation-adjusted ad costs remained flat while conversion rates improved.
The FTC argues that the pricing changes increased sellers' costs and ultimately pushed up prices for consumers. FTC Chairman Andrew Ferguson wrote on X that the higher ad charges affected the cost of essential products, including food and groceries.
"It's about raising rivals' costs and adding Amazon's bottom line," Shaoul Sussman, a former associate director for litigation in the FTC's Bureau of Competition, told The Wall Street Journal.
The suit is the FTC's latest major action involving Amazon. Last year, Amazon settled a separate case over its Prime enrollment and cancellation practices for $2.5 billion. The deal included a $1 billion civil penalty and $1.5 billion in refunds for an estimated 35 million customers. Amazon denied wrongdoing.
In 2023, Amazon agreed to pay more than $30 million to resolve FTC allegations involving privacy practices related to Alexa and Ring. Amazon also denied wrongdoing in that matter.