The US Federal Trade Commission has sued Amazon, alleging that the ecommerce giant manipulated advertising auctions on its platform to increase the prices paid by advertisers, in a case that could further intensify the US government’s campaign against Big Tech.
The lawsuit, filed in federal court in Seattle on Monday alongside a bipartisan group of 22 states, alleges that Amazon illegally extracted $20bn from “unwitting advertising customers”. The FTC claims the practices resulted in “substantial overcharges and cost increases” for about 1.2mn US advertising customers, including more than 500,000 small and medium-sized businesses.
FTC chair Andrew Ferguson warned that “unfair and deceptive conduct” by the online retailer could have a “staggering” impact, arguing that higher advertising costs “were largely passed on to American consumers”.
The regulator alleges that Amazon has been “secretly manipulating” its advertising auctions since 2018, in violation of federal laws prohibiting unfair or deceptive commercial practices. The case marks the third significant federal lawsuit brought against Amazon by the US consumer and competition watchdog in recent years.
Amazon has disputed the allegations. The company said its advertising auctions operate under a “second-price” model, in which advertisers are ranked according to their bids and relevance and pay only the minimum amount required to beat the second-highest bidder.
According to the FTC, however, Amazon introduced a price floor in most auctions that raised the minimum amount advertisers had to pay. The lawsuit alleges that advertisers were charged more than the second-highest bid through “undisclosed surcharges” or fees.
The FTC said these charges were applied to household essentials and other low-margin products where higher advertising costs were likely to be passed on to consumers. The specific average amounts by which Amazon allegedly inflated prices were redacted from court filings.
Amazon rejected the claim that its advertising practices resulted in higher consumer prices. It said the cost-per-click for sponsored products remained flat in inflation-adjusted terms between 2019 and 2024. The company acknowledged introducing “reserve prices” to ensure advertisements were priced at “market value”, but said these prices were fully disclosed to advertisers.
“The FTC’s claim fundamentally misunderstands how advertisers operate,” Amazon said. “Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics.”
The lawsuit adds another major regulatory challenge for Amazon as Washington increases pressure on the largest technology companies over alleged anti-competitive conduct. The company last year agreed to a $2.5bn settlement over allegations that it duped customers into signing up for its Prime service, including the largest civil penalty for a violation of the regulator’s rules. In 2023, Amazon reached a $25mn settlement over privacy issues involving its Alexa voice assistant.
Amazon is also facing a separate lawsuit scheduled for trial next year in which the government alleges that the retailer illegally uses monopoly power to overcharge consumers and impede competitors.
The latest action comes as the US government continues to scrutinise the digital advertising industry. A federal judge ruled last year in a case brought by the Department of Justice that Google maintained an illegal monopoly in digital advertising, a decision that could ultimately force the company to divest parts of its business.
Amazon’s advertising operation has become a major source of revenue for the company. It generated $68.6bn in advertising revenue last year, making Amazon the world’s third-largest digital advertising business behind Google and Meta.
Shares in the $2.8tn ecommerce group fell about 1 per cent after news of the FTC lawsuit, which was first reported by the Wall Street Journal. The case now places Amazon’s advertising practices under renewed legal scrutiny while adding another front to the US government’s broader challenge to the market power of major technology companies.
