Four things you need to know about the Amazon advertising lawsuit
The US Federal Trade Commission (FTC) and a bipartisan group of 22 state attorneys general are suing Amazon, alleging the e-commerce giant likely extracted more than $20bn from advertising customers by manipulating the auctions that set ad prices on its platforms.
The complaint, filed on Monday 31 August, alleges Amazon “secretly and systematically” overcharged approximately 1.2m US advertising customers since 2019.
The case centres on Amazon Ads’ Sponsored Ads business, which includes Sponsored Products, Sponsored Brands and Sponsored Display, and charges advertisers on a cost-per-click (CPC) basis.
Amazon has historically said it uses generalised second-price (GSP) auctions, where advertisers are ranked by bid and relevance to shopper searches, and the winner pays the minimum needed to beat the second-place bidder.
The FTC alleges Amazon secretly overrode that price with a higher one designed to increase its profits and reduce advertisers’ return on ad spend.
Amazon has rejected the FTC’s allegations, arguing that its Sponsored Ads auction does not harm advertisers or consumers. The company says its system prioritises ad relevance alongside bids, rather than simply rewarding the highest bidder, resulting in lower average winning bids and improved advertiser performance.
Here are four of the most notable claims.
1. Amazon allegedly added an “invented auction participant” into its ad auctions
The FTC alleges that Amazon became dissatisfied with the prices generated by its GSP auctions in 2018 and began introducing secret “reserve” pricing systems, internally referred to as “soft reserve”.
The complaint says that, rather than moving to a first-price auction, Amazon continued to run the GSP auction but then effectively introduced an “invented auction participant” to increase the price paid by the winning advertiser.
An internal memo cited in the complaint said: “Reserve prices are good for Amazon because they don’t change the allocation [of ads] and advertisers must pay more for the same advertising. Obviously, the benefit to Amazon comes at the cost of advertisers.”
The result, according to the FTC, was that Sponsored Products increasingly operated like a first-price auction. By 2024, advertisers were paying their own winning bid close to 80% of the time.
2. Peak shopping periods helped mask price increases
The complaint alleges Amazon saw major shopping events such as Prime Day and the holiday period as opportunities to increase prices without advertisers immediately identifying the cause.
Amazon allegedly believed that higher shopper and advertiser demand during these periods would make CPC increases appear normal and therefore “obfuscate” the effect of its pricing changes.
However, advertisers sometimes recognised the increase and complained. In December 2021, the complaint says Amazon’s pricing efforts resulted in increases that were “sudden and large”. Internally, the episode was referred to as the “CPC Spike” and generated nearly two dozen complaints.
Amazon allegedly responded to complaints by attributing the increases to higher advertiser and shopper demand.
The company subsequently decided to introduce future surcharge increases more gradually ahead of peak shopping periods, according to the filing.
Further complaints allegedly emerged around Prime Day in 2023, but the complaint says Amazon continued to attribute higher CPCs to increased shopper activity.
3. Advertisers were still being told Amazon used second-price auctions
The complaint alleges that Amazon continued to describe its advertising auctions as second-price auctions across its website, marketing and training materials, online training portals, YouTube channel and presentations delivered by account representatives.
Sales representatives were allegedly trained to explain Sponsored Ads using the GSP models, with pitch decks approved by Amazon’s public relations and legal departments and used with advertisers including Sony, Samsung, Harman JBL, and Coach.
The filing also cites a February 2024 email in which an advertiser CEO asked Amazon to clarify how its auction worked. According to the complaint, the head of Amazon Ads responded by explaining the generalised second-price auction without mentioning the alleged reserve pricing.
The FTC also alleges that Amazon concealed information about reserve prices from its own sales and marketing employees who interacted with advertisers.
The complaint says Amazon feared that disclosing the pricing system could damage advertiser trust and lead brands to lower their bids or reduce their spending, creating a potential “downward spiral”.
According to the filing, Amazon added a reference to “reserve pricing” in a page on its website titled “Understand Amazon Ad auctions” on 30 October 2025, after it had learned of the FTC’s investigation.
Amazon has also rejected the FTC’s claim that it misled advertisers about how the auctions work, saying its main advertising tools have clearly communicated bidding terms and that any outdated guidance was limited and subsequently updated or removed.
4. Advertisers had limited visibility over what they were paying
The FTC argues that Amazon’s reporting and automated bidding systems made the alleged price increases difficult to detect.
Advertiser invoices allegedly did not provide an itemised breakdown of charges by individual click or device. Instead, advertisers received averages combining multiple keyword auctions and different advertising placements.
Amazon’s automated bidding tools also allegedly added another layer of opacity because advertisers did not necessarily know the precise bid entered into each auction, making it difficult to distinguish changes driven by automated bidding from increases resulting from Amazon’s alleged pricing mechanisms.
The complaint cites an internal comment from a Sponsored Products manager in 2024 who wrote that “many advertisers bid far higher than what they are willing to pay” because they assumed Amazon was operating a GSP auction.
The FTC also alleges that Amazon gathered information directly from agencies and advertisers about their bidding strategies, the pricing metrics they monitored and how they responded when CPCs increased.
In 2023, the Sponsored Products auction team allegedly interviewed at least nine agencies and advertisers, asking questions about expected CPCs during major shopping events and what level of change would be considered alarming enough to trigger actions such as reducing bids or budgets.
What’s next?
The FTC and the 22 state attorneys general are seeking a range of remedies, including injunctive relief, changes or rescission of contracts, restitution and refunds, disgorgement of alleged ill-gotten gains, civil penalties and legal costs.
However, analysis from Madison & Wall suggests the case may not fundamentally change how brands allocate their commerce media budgets.
“Advertisers do not primarily decide how much to spend on Amazon based on the price of an individual ad,” the analysis states. “They decide based on whether the advertising works and the return they’re getting from their campaigns.”
Brands selling on Amazon want to advertise where consumers are searching for and buying their products, meaning the platform has leverage that goes beyond the price of an individual click or impression.
The case could, however, prompt greater scrutiny of transparency across the retail media sector, particularly around how platforms set auction prices and communicate their pricing models to advertisers.