The Federal Trade Commission (FTC), in conjunction with 22 state attorneys general, has initiated legal action against e-commerce giant Amazon. The lawsuit, filed recently, alleges that the company systematically and deceptively inflated prices within its search advertising auctions for more than seven years. This alleged scheme, detailed in a press release from the consumer protection agency, claims that Amazon executives were actively involved in concealing these practices, fearing that disclosure would inflict "irrevocable damage to advertiser trust," according to internal documents cited in the complaint.
The core of the lawsuit centers on Amazon’s Sponsored Product Ads, a significant component of its advertising business. This sector, which still represents the predominant portion of Amazon’s ad revenue, has grown exponentially. In 2025, Amazon’s advertising business generated nearly $70 billion in revenue, solidifying its position as the third-largest digital advertising platform globally, trailing only Google and Meta. The timing of this federal case against Amazon’s advertising practices coincides with a growing chorus of calls for increased standardization and transparency within the burgeoning retail media sector. Amazon currently dominates this market, controlling an estimated three-quarters of the total U.S. retail media ad spending, according to industry analysts. The FTC contends that Amazon’s alleged practices impacted over one million brands and generated tens of billions of dollars in revenue for Amazon itself.
Zak Stambor, a principal analyst at Emarketer, commented on the allegations, stating, "The allegations raise uncomfortable questions about how transparent Amazon is with advertisers, and whether they were paying more than they realized." This sentiment highlights the central concern of advertisers and regulators alike: the perceived lack of transparency in Amazon’s advertising marketplace.
A Chronicle of Alleged Deception: The Hidden Surcharge Scheme
The FTC’s complaint outlines a detailed account of Amazon’s alleged pricing manipulation. The e-commerce behemoth offered advertisers two primary auction formats for its Sponsored Product Ads: a first-price auction, where advertisers pay the exact amount of their winning bid, and a second-price auction, also known as a Generalized Second Price (GSP) auction. In a traditional GSP auction, the winning advertiser pays one cent more than the second-highest bid for each successful keyword placement. The rationale behind GSP auctions is that they incentivize advertisers to bid more aggressively, knowing they will ultimately pay only the minimum amount necessary to win the auction. As the FTC notes, advertisers often bid higher in these scenarios, understanding they are "only liable to pay the least bid amount needed to win under the auction’s rules."
However, the lawsuit alleges that in 2019, Amazon made a critical alteration to its GSP auction rules. This change introduced what internal Amazon documents, as quoted in the complaint, describe as a "hidden" surcharge within the GSP mechanism. This undisclosed charge, internally referred to by Amazon as a "soft reserve price," effectively compelled advertisers to pay "substantially" more than what the GSP auction itself would have dictated. This meant advertisers were paying a higher price than what the competitive bidding process alone would have determined.
The complaint further alleges that Amazon strategically applied this pricing inflation. Prices for advertising placements were reportedly inflated during standard shopping periods. However, Amazon allegedly implemented "far greater increases" during peak shopping seasons, such as Amazon Prime Day and Black Friday. This timing was reportedly deliberate, designed to maximize revenue during periods of high advertiser demand.
The FTC asserts that Amazon was acutely aware of the potential negative repercussions and advertiser backlash that such a scheme could provoke. Consequently, the company allegedly maintained a deliberate secrecy around these surcharges. To further mask the extent of these price hikes, Amazon is accused of steadily increasing prices in the lead-up to major shopping events like Prime Day, thereby making the subsequent jump in costs appear less dramatic and more organic.
FTC Chairman Andrew N. Ferguson underscored the gravity of the situation in a public statement. "When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering," Ferguson stated. "Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers." This statement directly links Amazon’s alleged practices to both advertiser harm and, ultimately, to increased prices for consumers.
Supporting Data and Market Context
The scale of Amazon’s advertising business is a critical backdrop to this lawsuit. In 2025, the company’s ad revenue approached $70 billion, a figure that underscores its significant influence in the digital advertising landscape. This revenue stream makes Amazon the third-largest player in the digital ad market, surpassed only by established giants Google and Meta.
The retail media sector, where Amazon reigns supreme, has seen explosive growth in recent years. This category refers to advertising opportunities offered by retailers on their own e-commerce platforms. Emarketer estimates suggest that Amazon commands approximately 75% of the total U.S. retail media market. This dominant position means that a vast number of brands, from small businesses to large corporations, rely on Amazon’s platform to reach consumers.
The FTC’s claim that over one million brands were affected by Amazon’s alleged practices highlights the widespread impact. If these allegations are proven true, the financial implications for these businesses could be substantial. Furthermore, as Chairman Ferguson noted, the increased advertising costs may have been passed down to consumers in the form of higher product prices, impacting millions of shoppers who utilize Amazon for their purchasing needs.
The average Cost Per Click (CPC) for Sponsored Product Ads is a key metric. While Amazon disputes the FTC’s claims, the allegations suggest a systematic manipulation of this metric through undisclosed surcharges. The FTC’s complaint suggests that these surcharges led to an artificial inflation of CPCs, potentially forcing advertisers to spend more to achieve the same visibility or conversion rates.
Amazon’s Defense: A Rebuttal of Allegations
In response to the lawsuit, Amazon has issued a robust defense, largely articulated in a detailed blog post addressing the FTC’s complaint. The company vehemently denies that its practices have caused harm to either consumers or advertisers. Amazon asserts that the cost per click for its Sponsored Product Ads, which are central to the FTC’s case, has remained stable when adjusted for inflation between 2019 and 2024. Moreover, the company highlights a significant 24% increase in conversion rates during the same period, arguing that this indicates improved campaign performance for advertisers.
"The FTC’s claim fundamentally misunderstands how advertisers operate," Amazon stated in its blog post. "Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics." This statement suggests that advertisers are sophisticated enough to adapt their bidding strategies based on the actual return on investment they achieve, rather than being solely dictated by the intricacies of auction algorithms.
Amazon further contends that certain practices under scrutiny, such as the "soft reserve prices," are standard industry practices within digital advertising. The company accuses the FTC of selectively choosing materials from outdated or simplified internal documents, presenting a skewed picture of its operations. Amazon also pushed back against the notion of a widespread, deliberate effort to deceive advertisers.
Regarding the internal communications cited by the FTC, Amazon characterized them as informal exchanges within its "writing culture." The company stated, "With a writing culture like we have, people at times use email as a brainstorming and suggestive medium, expressing ideas, testing hypotheses, but sometimes expressing thoughts that are either ill-formed or that they change later with the benefit of conversation and other views." Amazon’s defense suggests that these communications should not be interpreted as definitive evidence of intent or collective viewpoint, but rather as nascent ideas that were not necessarily implemented or endorsed.
Broader Implications and Advertiser Dilemmas
This legal challenge marks the third significant FTC case against Amazon in recent years. Previously, the company settled a lawsuit concerning its Prime subscription service and is currently facing a trial next year regarding allegations of monopolistic practices in online retail. Such high-profile litigation can have a protracted impact on a company’s operations and market perception.
However, the immediate reaction from advertisers may be subdued. This is largely due to Amazon’s unparalleled dominance in the e-commerce and retail media landscape. As Zak Stambor of Emarketer pointed out, "Advertisers face a tough challenge because Amazon is incredibly hard to walk away from." He elaborated, "We expect Amazon to generate $927.82 billion in worldwide retail ecommerce sales this year, thanks in large part to its Prime membership program, which gives it an ironclad grip on shoppers. That combination makes Amazon’s ads particularly powerful and gives advertisers few easy alternatives, even as scrutiny of the platform grows."
The implications of this lawsuit extend beyond Amazon and its advertisers. It underscores the growing regulatory focus on major technology platforms and their advertising practices. As retail media networks continue to expand, the need for clear guidelines and oversight becomes increasingly critical to ensure fair competition and protect both businesses and consumers. The outcome of this case could set important precedents for how advertising auctions are conducted on dominant e-commerce platforms and influence future regulatory approaches to digital advertising.
The complexity of digital advertising auctions, coupled with Amazon’s market power, creates a challenging environment for advertisers. While this lawsuit aims to bring greater transparency and accountability, advertisers may find themselves in a difficult position, weighing the potential benefits of Amazon’s platform against the perceived risks of opaque pricing mechanisms. The coming months and years will likely see extensive legal proceedings and further scrutiny of Amazon’s business practices in the digital advertising sphere.
