A landmark legal challenge has landed on Amazon’s doorstep, with the US Federal Trade Commission and a bipartisan coalition of 22 states accusing the e-commerce titan of secretly manipulating the digital advertising auctions at the heart of its sprawling marketplace.
Filed on Monday in Amazon’s home state of Washington, the lawsuit alleges the company has been quietly overcharging more than a million advertisers — potentially pocketing a staggering $20bn since 2019. The complaint argues that Amazon systematically replaced genuine auction results with inflated prices of its own choosing, padding its profits at the expense of brands, sellers and, ultimately, shoppers themselves.
Amazon, predictably, is fighting back.
A “misguided” claim or a rigged game?
In a statement to the BBC, Amazon said it “strongly disagrees” with the premise of the case, calling the lawsuit “misguided.” The company insists the FTC has fundamentally misread how its advertising platform operates.
At the centre of the dispute is the so-called “second price” auction model — a system where advertisers expect to pay just one cent more than the second-highest bidder for any keyword they win. In theory, it rewards competitive bidding while keeping costs relatively fair.
In practice, the complaint alleges, Amazon threw that model out of the window. Instead of honouring those auction mechanics, Amazon allegedly charged winning advertisers their own bid roughly 80 per cent of the time. The result? Advertisers routinely paid far more than they expected, and Amazon’s advertising coffers swelled accordingly.
The FTC’s complaint is blunt about the motivation behind the alleged scheme. Amazon, the watchdog claims, became “unhappy about how much revenue its advertising auctions were generating” and set about fixing the numbers in its favour.
The mechanics behind the allegations
For the uninitiated, Amazon’s ad platform is a giant in its own right. When consumers type keywords into the search bar on Amazon’s e-commerce site, brands compete fiercely to appear in those prized Sponsored Products and Sponsored Brands slots. Billions of these auctions take place every year, and they have become a critical revenue stream for the company.
The lawsuit paints a picture of a system that looks fair on the surface but is rigged underneath. Advertisers, believing they are participating in transparent second-price auctions, are instead being charged inflated rates. Those costs, the FTC argues, inevitably ripple outwards — passed on to consumers through higher prices on everything from kitchen gadgets to yoga mats.
“Consumers are suffering, have suffered, and will continue to suffer substantial injury as a result,” the complaint states.
Amazon has hit back hard. “The FTC wants the public to believe this case is about higher prices for consumers. It is not,” the company said. Amazon also pushed back on the auction mechanics claim itself, arguing that “advertisers adjust bids based on real-world performance, not descriptions of auction mechanics.”
The company pointed to its own data, noting that average winning bids on Sponsored Products search ads have actually fallen by 50 per cent between 2019 and 2025, and that roughly 92 per cent of placed ads do not go to the highest bidder. In Amazon’s view, the market is functioning exactly as intended.
Market reaction and a wider pattern
Investors were not so convinced. Amazon’s share price closed 2.5 per cent lower on Monday as the lawsuit made headlines, suggesting Wall Street sees real legal risk ahead — even if the final outcome remains years away.
This is not the first time Amazon has found itself in the FTC’s crosshairs. Just months ago, the company settled a separate case for a hefty $2.5bn after being accused of tricking millions of customers into Prime subscriptions and deliberately making the cancellation process a labyrinth. That settlement, announced in September, included civil penalties and consumer refunds.
The pattern is becoming hard to ignore. Amazon’s dominant position in online retail — particularly in the United States — has made it a magnet for regulators, lawmakers and competitors alike. Critics argue that the company’s sheer scale allows it to dictate terms to sellers, advertisers and consumers in ways that smaller players simply cannot match.
The current lawsuit, with its bipartisan coalition of state attorneys general, suggests the political appetite to challenge Big Tech’s advertising practices is not going away.
Why it Matters
This case strikes at the very heart of how digital advertising is bought and sold on the world’s largest online marketplace. If the FTC and state officials can prove that Amazon rigged billions of dollars in ad auctions, the implications stretch far beyond a single company — they would reshape trust in the automated auction systems that underpin much of the modern internet. Advertisers of every size deserve to know the rules of the game have not been silently rewritten in the referee’s favour, and consumers deserve to know that the prices they pay are not being inflated by hidden manoeuvres behind the scenes. Whatever the courts ultimately decide, this lawsuit has already put the world’s biggest online retailer on notice: the era of unfettered algorithmic self-dealing may be drawing to a close.
