FTC Sues Amazon Over Secret Ad Auction Rigging Worth $20 Billion
The Federal Trade Commission, backed by 22 state attorneys general, has filed suit against Amazon alleging the company spent seven years secretly overcharging roughly 1.2 million advertisers by manipulating the outcomes of its own ad auctions. The complaint, filed in the US District Court for the Western District of Washington, claims Amazon extracted more than $20 billion through what its own internal documents apparently called "hidden" surcharges.
The core allegation is straightforward. Amazon tells advertisers they are participating in a standard "generalised second-price" auction, where the winner pays just one cent more than the next highest bid. That is how digital ad markets are supposed to work. According to the FTC, Amazon has been quietly running something quite different since 2019.
Rather than letting the auction determine the final price, Amazon inserted what it internally called a "soft reserve price" — essentially a phantom bidder representing Amazon's own estimate of what an ad slot is worth. If the real auction settled below that figure, Amazon charged the winner more anyway. Advertisers had no idea this was happening.
The FTC obtained internal messages that make the situation look fairly damning. One Amazon senior scientist described the mechanism as "an invented auction participant" used to push prices up. A senior vice president responsible for ads acknowledged internally that the second price in Amazon's auctions was not being set by an actual bidder but by Amazon itself via a calculated proxy. In a 2024 message quoted in the lawsuit, an Amazon employee wrote simply: "We don't tell them about the surcharge, we let them assume [it is] GSP-based."
Amazon kept the existence of reserve pricing off its own website until October 2025, which the FTC notes was almost a year after the company learned it was under investigation.
Amazon's defence is predictably aggrieved. The company called the lawsuit "misguided" and accused the FTC of cherry-picking a handful of simplified internal training materials from a review of 1.5 million documents. Amazon does not deny using reserve prices, but frames them as a reasonable market correction — arguing that ads were previously winning placements at prices below their true market value.
On the actual mechanics, Amazon's explanation is that when a winning bid clears both its hard and soft reserve thresholds, the advertiser pays the soft reserve price, which Amazon says is less than they bid. If the bid clears the hard reserve but falls short of the soft reserve, the advertiser pays their bid. In no case, Amazon insists, does anyone pay more than they bid.
The company also points to its own cost-per-click data, claiming average prices remained flat between 2019 and 2024 when adjusted for inflation. It further claims advertisers saved over $8 billion between 2021 and 2025 because Amazon weights ad relevancy alongside price when selecting winners, meaning the highest bidder does not always win.
The FTC is not buying it. The agency's position is that the relevant comparison is not what advertisers paid versus inflation, but what they paid versus what a genuinely transparent auction would have charged them. The lawsuit also argues these inflated ad costs compound the financial pressure already bearing down on Amazon marketplace sellers, who are simultaneously paying account fees, referral fees, and fulfilment charges. Those costs, the FTC argues, ultimately flow through to consumers.
Amazon updated its ads documentation in April 2026 to reference reserve pricing, but the FTC says this disclosure still fails to clearly explain the nature or extent of the system that has been running since 2018.
The FTC and the states are seeking a permanent injunction to overhaul Amazon's advertising practices, along with civil penalties, restitution, and disgorgement of profits. Amazon, for context, reported net sales of $200.6 billion and net income of $62.6 billion in Q2 2026 alone. A $20 billion figure spread over seven years is, for the company, a rounding error. Whether the courts see it that way is another matter.