FTC and 22 States Sue Amazon Over Ad Auction Practices

California Attorney General Rob Bonta announced the state's participation in a federal lawsuit that accuses Amazon of manipulating its advertising auctions in ways that imposed hidden costs on more than a million brands and sellers. The case, filed by the Federal Trade Commission along with 22 states total, alleges that the company converted what advertisers understood as second-price auctions into first-price ones without disclosure, raising expenses by tens of billions of dollars over seven years and likely shifting some of those burdens onto consumers through higher product prices.

The complaint centers on Sponsored Products, Sponsored Brands and Display Ads that appear alongside search results on Amazon's platform. Advertisers were told they would pay only one cent above the next highest bid if they won, yet internal records cited by regulators show Amazon charged winning bidders their full maximum amount in roughly 80 percent of cases. This practice, according to the suit, functioned as an undisclosed surcharge that affected more than 500,000 small and medium-sized businesses and generated what the FTC described as over $20 billion in extra revenue for Amazon.

Bonta framed the issue as one of basic market fairness. He said Amazon misrepresented how its auctions operated, allowing the company to extract profits at the expense of sellers who depend on the platform to reach customers. Regulators argue the scheme was not an isolated glitch but a sustained policy that undermined the competitive process advertisers believed they were entering. The added costs, they contend, ultimately fed into broader price pressures felt by shoppers who already face limited alternatives in many product categories.

Amazon rejected the claims outright, calling the lawsuit misguided and insisting that its auction mechanics were clearly explained to participants. The company maintains that advertisers understood the rules and that any pricing outcomes reflected legitimate bidding dynamics rather than deception. Company statements emphasized that Sponsored Ads remain a voluntary tool for businesses seeking visibility, not a mandatory cost of selling on the platform.

The lawsuit arrives amid ongoing federal and state efforts to examine concentrated power in digital marketplaces. Amazon's dual role as both a dominant retailer and the gatekeeper for third-party advertising has drawn repeated scrutiny from policymakers concerned about how platform rules can tilt outcomes toward the company's own bottom line. Small sellers, many of whom operate on thin margins, have limited ability to shift volume elsewhere when a single site accounts for such a large share of online retail traffic. If the allegations hold, the case could illustrate how opaque pricing mechanisms in concentrated markets extract resources that might otherwise support lower consumer prices or greater business investment.

Legal proceedings will now move through federal court in Washington state, where both sides will present evidence on whether Amazon's auction descriptions amounted to material omissions. The outcome could influence how other large platforms structure their own advertising systems and whether additional transparency requirements emerge from regulators or Congress. For now, the suit underscores the tension between rapid growth in digital advertising markets and the need for clear rules that prevent dominant firms from reshaping those markets in their favor without accountability.