FTC accuses Amazon of hiding billions in ad surcharges

The Federal Trade Commission and 22 state attorneys general sued Amazon on August 31, 2026, alleging that the company secretly converted its online advertising auctions into a system that charged advertisers far more than the published rules suggested.

The FTC’s complaint and announcement say Amazon altered its auction system beginning in 2019, adding undisclosed charges that affected more than one million brands and sellers. The agency estimates that the alleged scheme extracted tens of billions of dollars from advertisers, while the complaint cited by the agency says the total likely exceeded $20 billion.

The case centers on Sponsored Product ads, Sponsored Brands ads and Display Ads shown alongside Amazon search results. Advertisers bid for placements tied to product-search keywords. Under the generalized second-price model Amazon allegedly presented to customers, the winning advertiser should pay one cent more than the next-highest bidder—not necessarily the full amount it offered.

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The FTC says Amazon instead introduced what internal documents called a “soft reserve price” and a “proxy 2nd price.” That extra price was not set by an actual competing advertiser. The complaint alleges that Amazon calculated it after the auction and substituted it for the genuine auction result, effectively making advertisers pay a first-price amount while continuing to represent the system as a second-price auction.

Auction design changes bidding behavior. In a first-price auction, an advertiser risks paying its entire bid, so it may shade bids downward over repeated auctions to discover the lowest amount that still wins. In a second-price auction, an advertiser has more reason to bid close to the value of the placement because the final price should be determined by the next-highest bid.

The complaint alleges Amazon benefited from advertisers believing the second-price rules still applied. It quotes internal Amazon material describing an “invented auction participant” and says the company’s hidden bids functioned like shill bids. Another internal document reportedly acknowledged that the surcharge allowed Amazon to obtain prices “beyond what [can] be achieved through advertiser competition.”

The FTC also alleges that Amazon adjusted the surcharges around high-volume shopping periods. According to the complaint, the company increased them on ordinary shopping days and applied larger increases around Prime Day and Black Friday, while ramping them up carefully to avoid making the change obvious to advertisers. The agency says Amazon monitored customer behavior and tested pricing changes to raise revenue without prompting advertisers to reduce their bids.

A 2024 discussion involving the head of Amazon Ads and Amazon’s chief digital economist allegedly described Amazon’s “clever non-transparent way to charge first price” as an “incredibly effective way to drive revenue.” The complaint says Amazon feared that disclosing the system would damage advertiser trust and trigger a downward cycle of lower bids and lower revenue.

Amazon disputes the auction claim and consumer impact

Amazon denies that it deceived advertisers and says the FTC is misreading how its advertising marketplace works. The company’s response says advertisers adjust bids according to real-world campaign performance, not simply according to their understanding of auction terminology. Amazon also says the FTC reviewed approximately 1.5 million pages spanning six years but relied on a small number of oversimplified internal communications.

“The FTC claims advertisers were harmed because they didn’t understand how our auction worked and therefore overpaid. Not only do we properly describe our pricing and auctions to advertisers, but this claim fundamentally misunderstands how advertisers behave. Advertisers adjust bids based on real-world outcomes, not descriptions of auction mechanics.”

Amazon further claims that the average winning bid for Sponsored Products search ads fell 50% from 2019 to 2024 in one response, and from 2019 to 2025 in another version of its statement. That one-year difference is material to the company’s defense, although neither figure by itself addresses the FTC’s allegation that advertisers increasingly paid their full bids after Amazon applied its alleged surcharges.

The company also says advertisers saved more than $8 billion from 2021 to 2025 because Amazon incorporated ad relevancy into its auction rather than awarding placements based on bid alone. That claim describes a different calculation from the FTC’s alleged surcharge total: it concerns the effect Amazon says ad relevance had on pricing, while the regulator is challenging whether the auction price was honestly represented in the first place.

FTC Chairman Andrew Ferguson said the alleged higher advertising costs were largely passed on to American consumers.

“When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering. Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers. The FTC under President Trump won’t allow this deception to continue.”

Amazon says the lawsuit cites no evidence that consumers paid higher prices because of the advertising system. The complaint argues that advertisers' additional costs ultimately harmed shoppers, but the supplied filings do not establish a specific average price increase for consumers or identify particular products whose prices rose because of the alleged conduct.

The lawsuit adds to Amazon’s regulatory record

The lawsuit includes more than 500,000 small and midsize businesses among the affected advertising customers identified by the FTC. It was authorized by a 2-0 commission vote and filed in Washington state federal court. The states participating in the case 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.

Amazon agreed to a $2.5 billion settlement in 2025 over allegations involving deceptive Prime enrollment and cancellation practices, and the FTC’s separate antitrust case against the company is scheduled for trial in 2027. The advertising complaint is not an antitrust finding; it alleges violations of the FTC Act and more than a dozen state laws based on deceptive and unfair conduct.

Amazon’s shares closed 2.5% lower on August 31, 2026, after the lawsuit was announced. The case centers on whether Amazon’s auction remained a genuine generalized second-price system or whether the displayed auction merely determined a reference point before Amazon imposed its own price.