Amazon is accused of artificially inflating the ad prices on its e-commerce site in a lawsuit filed Monday by Washington’s attorney general, the Federal Trade Commission (FTC) and 21 other states.
Amazon denies the allegations, saying its ad pricing has not harmed advertisers or shoppers and that the FTC’s claims mischaracterize how its system works.
Ads are sold on Amazon’s platform through so-called “second-price” auctions, in which businesses set a maximum price they’re willing to pay for an ad. If they’re the highest bidder, they pay only one cent more than the second-highest bid, and the auctions do not allow advertisers to see other bids.
Plaintiffs allege that beginning in late 2018, Amazon started adding surcharges to the prices, despite claims that it was still using a second-price system.
The lawsuit, filed in U.S. District Court for the Western District of Washington in Seattle, alleges the tech giant overcharged roughly 1.2 million ad customers by overriding and replacing auction results with “higher prices set by Amazon to increase its profits.” The amount collected through the allegedly deceptive pricing scheme totals $20 billion, according to the suit.
“Many small business owners in Washington rely on Amazon for their livelihoods, and our office is committed to making sure Amazon treats them fairly, transparently, and in accordance with the law,” said Nick Brown, Washington’s attorney general, in a statement.
Amazon posted an online response to the allegations. “The FTC’s claim fundamentally misunderstands how advertisers operate,” the company stated. “Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics.”
The company said it prioritizes the relevance of an ad to the shoppers being targeted over bid price alone. As a result, Amazon said, 92% of winning ads in recent years were not given to the highest bidder, and ad performance has improved. Conversion rates — the percentage of shoppers who take a desired action after interacting with an ad — rose 24% from 2021 to 2025, according to Amazon.
The company also said that from 2019 to 2024, the average cost-per-click for sponsored product search ads was flat when adjusted for inflation.
Amazon acknowledged it has changed its ad pricing approach over time, saying that as the system prioritized ad relevance, winning bids increasingly fell below market value. As a result, the company now sets minimum prices, or “reserves,” for participating in an auction and for the minimum market value of the ad.
“Reserves like these,” it said, “are common across the industry.” The company said it does not charge advertisers more than their bid.
Amazon said it clearly explains its pricing process to advertisers. Plaintiffs dispute that, citing company employees who described creating fake auction participants.
The suit states that an Amazon senior scientist said that to increase auction prices, the company inserts “an invented auction participant representing how much Amazon thinks that particular ad slot is worth.”
The lawsuit is being led by the FTC and also includes the attorneys general of Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina and Vermont.
The company is also in the FTC’s crosshairs in a separate, broader antitrust case accusing Amazon of maintaining an illegal monopoly in online retail, which is scheduled for trial next year.
Plaintiffs in the case announced Monday are asking the court to order Amazon to reform its practices, pay restitution and civil penalties for each violation, and cover attorneys’ fees.