FTC and 22 States Sue Amazon, Alleging Secret Ad Scheme Cost Advertisers More Than $20 Billion

Amazon is facing a new federal lawsuit alleging the company secretly manipulated the auctions used to determine advertising prices, costing more than 1.2 million brands and sellers at least $20 billion and potentially pushing some of those costs onto shoppers. The Federal Trade Commission filed the lawsuit August 31 alongside a bipartisan coalition of 22 states, including New York, California, Florida, North Carolina, Pennsylvania and Washington.

Regulators accuse Amazon of deceptive and unfair practices involving advertisements that appear alongside product search results on its website and app. Amazon denies wrongdoing and disputes the government’s claims about both advertising costs and consumer harm.

Regulators Say Amazon Secretly Changed How Ad Auctions Worked

The lawsuit centers on Amazon’s advertising auctions, which determine how much businesses pay to have sponsored products and other ads displayed to shoppers. According to the complaint, Amazon represented its system to advertisers as a “second price” auction in which the winning advertiser generally would pay one cent more than the next-highest bid.

Regulators allege Amazon didn’t consistently operate the auctions that way. The complaint accuses the company of secretly intervening in auctions and effectively increasing the prices advertisers had to pay. The FTC alleges Amazon sometimes entered its own bids into auctions, raising prices for other participants while attempting to conceal the practice from advertisers.

The government says some form of Amazon intervention occurred in as many as 80% of Sponsored Products auctions.

More Than 1.2 Million Advertisers Allegedly Paid Higher Prices

The FTC and states allege that more than 1.2 million brands and sellers were affected by Amazon’s advertising practices. That group includes more than 500,000 small and medium-sized businesses, according to the federal complaint. Regulators estimate advertisers have paid at least $20 billion more as a result of Amazon’s alleged practices and say the amount of harm could ultimately reach tens of billions of dollars.

The allegations are particularly significant because advertising has become a major business for Amazon. The company’s advertising sales reached $68.6 billion in 2025, according to figures reported by Reuters. Many merchants selling through Amazon use sponsored listings to increase the visibility of their products when shoppers search the platform, making advertising costs another expense businesses must account for when deciding what to charge.

The Lawsuit Says Shoppers May Have Paid More, Too

The case isn’t only about what advertisers paid Amazon. Regulators also allege that inflated advertising expenses were ultimately reflected in higher prices consumers paid for products sold on the platform.

The New York Attorney General’s office says the alleged practices affected advertising for everyday purchases including food, groceries and pharmacy products, not merely discretionary items. The lawsuit further alleges that Amazon imposed higher advertising prices during major shopping periods such as Black Friday and Prime Day.

That doesn’t mean regulators have established that every seller passed a specific Amazon advertising surcharge directly to consumers. Instead, the government’s argument is that artificially higher advertising expenses increased merchants’ costs and that some of those costs ultimately resulted in higher retail prices.

Whether the FTC and states can prove those allegations will be decided through the legal process.

Amazon Says Advertisers Actually Saved Billions

Amazon strongly disputes the government’s characterization of its advertising auctions. The company says its system is designed to prioritize ads that are relevant to shoppers rather than simply awarding every placement to the advertiser making the highest bid. Amazon also argues that its advertising approach has lowered rather than inflated costs.

The company says advertisers saved approximately $8 billion between 2021 and 2025 as a result of its approach and that average winning bids for Sponsored Products search advertisements fell about 50% from 2019 to 2025. Amazon has also rejected the government’s consumer-price argument, saying its approach to advertising pricing contradicts suggestions that shoppers were harmed and maintaining that it works to keep retail and grocery prices competitive with other retailers.

Why Amazon’s Advertising Auctions Matter to Small Businesses

For a small business selling a $20 or $30 product, even relatively small increases in customer-acquisition costs can affect how profitable each sale is. A seller generally has only a few ways to absorb higher expenses: accept a smaller profit margin, cut costs elsewhere or attempt to raise prices.

That’s why the allegations about more than 500,000 small and medium-sized advertisers could have financial consequences beyond Amazon’s advertising division. The lawsuit alleges that advertisers lacked the auction information they would have needed to understand how Amazon was determining their final prices.

Regulators contend that greater transparency would have affected how businesses bid and how much they were willing to spend on advertising.

FTC and States Are Seeking Financial Relief

The lawsuit was filed in federal court in the Western District of Washington. The FTC and participating states are asking the court for an injunction that would stop the challenged practices as well as monetary relief. States may also seek civil penalties and attempt to recover money allegedly lost as a result of the advertising practices.

New York Attorney General Letitia James joined attorneys general from Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington. The FTC currently lists the Amazon case as pending.

The $20 Billion Figure Remains an Allegation

The enormous dollar figure makes the case significant, but shoppers and businesses should remember that the lawsuit is at an early stage. The FTC and 22 states allege Amazon secretly manipulated its advertising auctions, harmed more than 1.2 million advertisers and extracted at least $20 billion in additional advertising costs.

Amazon denies those allegations and says its advertising system has actually produced billions of dollars in savings for advertisers. No court has made a final determination that Amazon violated the law or that its advertising practices caused consumers to pay higher prices. The case will now move through federal court, where the government will have to prove its allegations and Amazon will have the opportunity to challenge them.

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Amanda Blankenship

Amanda Blankenship is Chief Editor at District Media, Inc., leading content strategy, quality assurance, and editorial operations across high-traffic personal finance sites like SavingAdvice.com and CleverDude.com. A Wingate University graduate with a BA in Communications (Journalism focus), she brings over a decade of experience in digital publishing, writing, and team leadership in the personal finance space.