Amazon is facing serious allegations from the U.S. Federal Trade Commission (FTC) and a coalition of 22 states, claiming that the company has improperly inflated advertising costs for over a million clients through manipulation of its auction systems. This lawsuit, initiated on Monday, suggests that Amazon’s tactics have potentially garnered the company around $20 billion (£14.8 billion) from advertisers since 2019.
The complaint asserts that Amazon alters the outcomes of its advertising auctions, replacing true auction results with higher prices to maximize its own profits. According to the FTC, this not only affects advertisers but also has repercussions for consumers, as these extra costs likely get passed down to shoppers.
Amazon has responded to these accusations by firmly denying them, stating that it “strongly disagrees” with the assertion of misleading advertising practices. The e-commerce giant characterized the lawsuit as “misguided,” emphasizing its transparency in auction mechanics.
The FTC claims that consumers have sustained significant harm due to this alleged scheme, leading to increased prices on products. In their rebuttal, Amazon asserts that the situation is misrepresented, clarifying that the case isn’t fundamentally about consumer price hikes.
Following the lawsuit announcement, Amazon’s stock experienced a decline, closing 2.5% lower on Monday. With many companies vying for space in Amazon’s advertising ecosystem, competition is fierce for placements like Sponsored Product ads and Sponsored Brands ads, which utilize keyword searches on the platform.
The heart of the complaint lies in the alleged exploitation of “second price” auctions, where advertisers typically expect to pay just above the next highest bid. However, Amazon reportedly charged winning bidders their own full bid approximately 80% of the time, compromising the integrity of the bidding process.
The lawsuit claims that Amazon was dissatisfied with its advertising revenue, prompting the alleged manipulation of auction outcomes. In defense, the company contends that the FTC fundamentally misinterprets how advertisers operate, noting that bid adjustments depend primarily on actual performance rather than the auction mechanics described.
Amazon highlighted that average winning bids for Sponsored Products have dramatically dropped by 50% from 2019 to 2025, and claimed that around 92% of ad placements do not go to the highest bidder. This situation is not Amazon’s first encounter with the FTC; the company reached a $2.5 billion settlement last year over claims regarding unauthorized enrollments in its Prime subscription service.
Editor’s Take
This lawsuit holds significant implications not just for Amazon, but for the entire digital advertising landscape. If the allegations are proven true, this could lead to stricter regulations in advertising auctions and reshape how companies interact with platforms. For users, it raises concerns about transparency and fairness in pricing. The outcome will likely prompt businesses and advertisers to reassess their strategies when navigating these complex ecosystems.
Source: www.bbc.co.uk
