The Federal Trade Commission has filed a lawsuit against Amazon on Monday in federal court in Seattle, alleging the e-commerce giant systematically overcharged advertisers by more than $20 billion since 2019. The lawsuit, joined by 22 US states, claims Amazon has secretly and systematically overcharged approximately 1.2 million advertising customers since 2019, including over 500,000 small businesses. The FTC alleges that advertisers were not sufficiently informed about the pricing and terms governing the auctions, with the agency seeking civil penalties and attempting to recover alleged damages. California Attorney General Rob Bonta stated that "Amazon has misrepresented how it calculates the cost of advertising on its platform," while New York Attorney General Letitia James warned that "Consumers across the country are likely paying more for everything from groceries to electronics because Amazon has wrongfully inflated its ad prices."
Amazon has denied the FTC allegations, arguing that the lawsuit misunderstands how its advertising auctions work. The company said its auctions prioritize the relevance of products to shoppers' search terms before considering advertisers' bids, helping consumers find relevant products while keeping advertising costs competitive. Amazon claimed its auction system saved advertisers $8 billion over the five years through 2025, with the average cost-per-click for search ads remaining flat after adjusting for inflation between 2019 and 2024, while sales generated through those clicks increased. The company further argued that the FTC provided no evidence that its advertising practices harmed shoppers or that advertisers were improperly charged. An internal email cited in the complaint revealed that an unidentified Amazon senior scientist said the company accomplished the alleged manipulation by using "an invented auction participant representing how much Amazon thinks that particular ad slot is worth."
The FTC filed the suit after reviewing more than a million internal Amazon documents obtained through investigatory subpoenas, with an FTC official stating that the investigation was aided by Amazon employees' culture of writing everything down. Internal emails and chats showed widespread discussions about the impact of the alleged scheme, according to the official. The investigation revealed that Amazon used a "second price" auction process since 2012, where auction participants are ranked by a combination of their bid and relevance to shoppers' searches, with the winning bidder paying only the minimum amount necessary to beat the second place bidder, typically one cent. Starting in 2018, Amazon allegedly began "secretly manipulating" this process by replacing the price determined by the auction with a higher price designed to maximize profits. An FTC official noted that the probe was a top priority for the agency.
Investors reacted swiftly to the news, with Amazon shares falling over 3% on Monday afternoon, erasing roughly $86 billion in market value. The stock traded at $257.87 early Monday afternoon, down from a $266.43 close. This selloff already dwarfs past fines, as Amazon paid a $1 billion civil penalty last September over Prime sign-ups, with the market erasing about 86 times that figure in a single afternoon. The market reaction reflects investor concerns about both the immediate legal exposure and potential broader regulatory implications for AI-driven pricing practices.
Advertising revenue represents a significant portion of Amazon's business, bringing in $69.6 billion in 2025, close to a tenth of the company's $716.9 billion in sales. These high-margin dollars help fund heavy AI capital spending. The real risk for Amazon may not be the fine amount but rather potential changes to the auction system that could directly impact this revenue engine. While there are limits on the FTC's ability to obtain monetary penalties, state consumer protection and unfair competition laws allow for tens of thousands of dollars in daily fines, with those numbers adding up fast given the vast number of ads shown on Amazon's website. The FTC's broader enforcement signals against AI-driven pricing practices add another layer of regulatory uncertainty for companies using algorithmic tools to vary prices by customer.
The case follows a similar pattern to Google's ad business, where a judge ruled against the company in 2025 but the remedy remains unsettled. The FTC's complaint will likely focus on the remedy section rather than the dollar figure. Amazon's seller guidance, updated in April, does mention reserve pricing, stating that 'some reserves help allocate ad space by setting a bid threshold,' according to the Wall Street Journal. The lawsuit marks the latest legal battle between Amazon and the FTC, which has scrutinized the company's business practices for years. In September last year, Amazon agreed to pay $2.5 billion to resolve a separate FTC case involving allegations that it deceived customers into signing up for Prime subscriptions, while the company also faces another major antitrust case over allegations of maintaining a monopoly in online retail markets with a trial scheduled for early next year.
