FTC and 22 States Sue Amazon Over Ad Auction Practices

California has joined the Federal Trade Commission and 21 other states in suing Amazon over allegations that the company secretly manipulated its advertising auctions for more than seven years. The complaint claims Amazon misled over a million brands and sellers about how costs were calculated, effectively turning what was presented as a second-price auction system into something closer to a first-price setup where winners often paid their full maximum bids. Regulators say this practice extracted more than 20 billion dollars from advertisers, with much of the added expense passed along to shoppers in the form of higher prices.

The lawsuit, filed in federal court in Washington state, focuses on Sponsored Products, Sponsored Brands, and Display Ads that appear alongside search results on Amazon's platform. Advertisers were told they would typically pay just one cent more than the next highest bidder, yet internal company documents cited in the complaint indicate Amazon charged the full bid amount nearly 80 percent of the time. California Attorney General Rob Bonta said the company misrepresented its pricing methods for years, rigging billions of auctions to boost its own profits at the expense of businesses that depend on the platform to reach customers.

Small and medium-sized sellers appear to have borne much of the burden. The FTC estimates more than 500,000 such businesses faced undisclosed surcharges, and the added costs likely contributed to the broader rise in consumer prices seen in recent years. The states involved range from Florida to Alaska, reflecting a wide geographic spread in the coalition. Bonta described the scheme as one that inflated Amazon's bottom line while ordinary Americans who run businesses on the site paid the price.

Amazon has pushed back hard, labeling the case misguided and insisting that advertisers were not misled about how the auction system worked. The company maintains its practices were transparent and that the lawsuit overlooks the competitive nature of online advertising. Still, the complaint points to internal records suggesting executives were aware the hidden adjustments were driving substantial revenue gains.

Critics of large technology platforms have long argued that Amazon's dominance in e-commerce gives it outsized power to shape market rules in its favor. This latest action adds to a string of regulatory challenges the company has faced over pricing, seller treatment, and data practices. For the small businesses that list products on Amazon to survive, the alleged auction changes could have meant the difference between modest profits and ongoing losses, especially as inflation pressures mounted.

The case will now move through the courts, where Amazon will have the opportunity to present its defense. In the meantime, the details released so far paint a picture of a system that rewarded the platform while leaving advertisers guessing about true costs. Whether the lawsuit results in meaningful changes or simply adds another chapter to ongoing battles between regulators and big tech remains to be seen.