An internal Amazon executive called it an “invented auction participant.” Businesses were told they’d pay one cent more than the next bidder. Instead, the company charged its own winners full price 80% of the time — for seven years, on a business that pulled in $68.6 billion last year alone.
The FTC and 22 state attorneys general sued Amazon Monday, alleging the company secretly inflated advertising prices for more than 1.2 million brands and sellers over seven years. The 181-page complaint, filed in federal court in the Western District of Washington, accuses Amazon of deceptive and unfair practices that “likely extracted over 20 billion dollars” from advertisers bidding on its Sponsored Products, Sponsored Brands, and Sponsored Display placements. FTC Chairman Andrew Ferguson didn’t soften the situation: “When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering. Amazon has millions of advertising customers who were misled into paying higher prices. The higher costs were passed on to American consumers.”
What’s Happening & Why It Matters
How Second-Price Auctions (Should) Work
The mechanism at the centre of the case is standard across digital advertising. In a second-price auction, the winning bidder pays only one cent more than the next-highest bid — not their own maximum offer. That structure, industry-standard across digital ad platforms, is designed to give advertisers confidence they’re never overpaying relative to actual competition for the same placement. Amazon told businesses that’s how its system worked.
The complaint alleges that promise stopped being true in 2018, six years after Amazon’s ad auction first launched. According to internal documents cited in the filing, Amazon began overriding its own auction results, replacing the second-price outcome with higher rates it set—without telling advertisers the rules had changed at all.
The “Invented Auction Participant”
Here’s the detail that turns everything from a pricing dispute into something closer to fraud. The FTC’s complaint cites internal communications between Amazon ad executives, including one exchange in which an executive allegedly acknowledged that Amazon uses an “invented auction participant” to push prices higher. CBS News reported the practical effect: the lawsuit alleges Amazon charged winning bidders its own maximum price—not the second-highest bid—80% of the time.
The complaint describes a specific 2019 mechanism the FTC calls a “soft reserve price,” added without notice. “Amazon made this surreptitious change to its auction because it was unhappy about how much revenue its advertising auctions were generating,” the agency wrote. That’s an allegation that Amazon’s own dissatisfaction with organic auction revenue — not any change in advertiser demand or competition — drove the pricing shift. The complaint adds a specific characterisation of Amazon’s conduct since: “Amazon takes great pains to actively conceal from customers the fact that it inflates its purported auction prices.”
Half of the Affected Advertisers Are Small Businesses
The scale is charged beyond the headline $20 billion figure. Nearly half of the 1.2 million affected advertisers were small or medium-sized businesses — companies with less leverage to negotiate, audit, or walk away from Amazon’s advertising ecosystem than a major national brand would have. CNN reported the FTC’s position that those inflated advertising costs didn’t stay contained to seller margins; they flowed through to the prices Amazon shoppers paid at checkout.
Amazon’s own defence, provided to CNN in a 3,000-word statement, pushed back hard: the company “strongly disagrees” with what it called a “misguided” lawsuit, noting average winning bids for sponsored product ads dropped 50% between 2019 and 2025. That’s a specific counterclaim — if accurate, it complicates the FTC’s inflation narrative, though it doesn’t address the “invented auction participant” allegation or the specific internal communications the complaint cites.
Targeting Amazon’s Ad Business
This is Amazon’s first federal case tied to its advertising unit — a business Axios notes is one of the company’s fastest-growing revenue sources, worth $68.6 billion in 2025 alone. Federal regulators have sued Amazon before over antitrust concerns and Prime enrolment practices, most notably the $2.5 billion Prime settlement reached last September. But ad pricing hasn’t drawn the level of scrutiny at Amazon, even as rivals like Google faced more public attention over comparable ad-tech practices — the Justice Department won a major antitrust case against Google’s ad-tech monopoly just last year.
TF Summary: What’s Next
The FTC and joining states are seeking an injunction forcing Amazon to stop the alleged practices, alongside monetary relief for affected advertisers — though the complaint doesn’t specify a dollar figure for that relief. Amazon has not indicated whether it will seek to dismiss the case or proceed to discovery. No trial date has been set. Amazon’s ad business continues operating under its current auction structure while litigation proceeds.
MY FORECAST: Expect Amazon to fight harder than the Prime enrolment case it settled last year, given the sheer scale of potential exposure — a $20 billion allegation, spread across 22 states plus federal claims, carries settlement stakes that dwarf the earlier $2.5 billion resolution. The “invented auction participant” quote, if it survives discovery intact, is the single piece of evidence the case turns on; internal admissions of that specificity are what separates a winnable deceptive-practices claim from a harder-to-prove pricing dispute. Watch whether additional states join the coalition before trial, following the pattern TF has documented across multiple 2026 tech enforcement actions where initial state coalitions grow once litigation exposes internal communications the public hadn’t previously seen.
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