Amazon is facing a major legal challenge in the United States after the Federal Trade Commission (FTC) and a bipartisan group of 22 states accused the company of manipulating its online advertising auctions to overcharge customers.
The lawsuit, filed on Monday in Washington state, alleges that Amazon secretly altered the results of advertising auctions used to determine how much businesses pay to place ads on its platform.
According to the complaint, the alleged practice may have generated about $20 billion for Amazon since 2019 at the expense of more than one million advertisers.
“Amazon overrides and replaces the actual auction results with higher prices set by Amazon to increase its profits,” the complaint states.
The FTC and participating states also argue that the alleged overcharging could ultimately affect consumers because businesses may pass the additional advertising costs on to shoppers through higher prices.
“Consumers are suffering, have suffered, and will continue to suffer substantial injury as a result,” the complaint alleges.
Amazon has strongly rejected the accusations, describing the lawsuit as misguided and arguing that the regulators misunderstand how its advertising system works.
“The FTC wants the public to believe this case is about higher prices for consumers. It is not,” Amazon said in a statement to the BBC.
The legal action centres on Sponsored Product and Sponsored Brand advertisements, which businesses use to promote products when shoppers search for particular keywords on Amazon.
Advertisers compete for those placements through auctions.
The complaint alleges that Amazon told advertisers they would generally pay only one cent more than the next highest bidder under a so-called “second price” auction system.
However, regulators allege that Amazon instead charged Sponsored Products advertisers close to their full winning bid nearly 80 percent of the time.
According to the lawsuit, Amazon changed its approach because it was dissatisfied with the amount of revenue its advertising auctions were generating.
Amazon disputed that interpretation and said advertisers make bidding decisions based on the performance of their campaigns rather than assumptions about the mechanics of the auction.
“Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics,” the company said.
Amazon also cited its own figures, saying average winning bids for Sponsored Products search ads fell by 50 percent between 2019 and 2025.
The company further claimed that roughly 92 percent of placed advertisements are not awarded to the highest bidder.
Amazon shares fell following news of the lawsuit, ending Monday’s trading session 2.5 percent lower.
The latest case adds to Amazon’s history of disputes with the FTC. Last year, the company agreed to pay $2.5 billion to settle allegations that it enrolled millions of people in its Prime subscription service without their consent and made it unnecessarily difficult for customers to cancel.
The new lawsuit will now test whether Amazon’s advertising practices violated US competition and consumer protection laws and whether advertisers and consumers are entitled to compensation.
