The U.S. Federal Trade Commission and attorneys general from 22 states filed a lawsuit against Amazon.com Inc. over its online advertising practices, alleging that the e-commerce company misled advertisers and inflated prices. The complaint targets three of Amazon鈥檚 advertising offerings: Sponsored Products, Sponsored Brands, and Sponsored Display. These services allow merchants to bid for ad space on Amazon鈥檚 platform and, in the case of Sponsored Display, on external websites as well. The suit claims that Amazon鈥檚 actions affected roughly 1.2 million U.S. advertisers, costing them tens of billions of dollars over the past seven years.
Amazon entered the online advertising market in 2008 with a service called Product Ads, which let merchants promote items within the search engine on its e-commerce platform. Since then, the company has grown to become the world鈥檚 third-largest online advertising provider, trailing only Google LLC and Meta Platforms Inc. The FTC鈥檚 complaint focuses on how Amazon structured its ad auctions, which determine which ads appear and at what price.
The central allegation is that Amazon changed its auction model without notifying advertisers. Initially, the company used a second-price auction, where the highest bidder wins but pays only slightly more than the second-highest bid. The FTC claims Amazon quietly switched to a first-price auction, where the winning bidder pays the full amount of its bid, around 2019. According to regulators, this shift made it harder for bidders to avoid overpaying because cost-cutting strategies that work in one auction type often do not translate to another.
The FTC also alleges that Amazon actively tried to hide the auction change from ad buyers. Additionally, the complaint charges that Amazon uses a soft reserve system, which injects bogus bids into ad auctions to artificially drive up prices. FTC Chair Andrew Ferguson stated that millions of Amazon advertising customers were misled into paying significantly higher prices, and that these increased costs were largely passed on to American consumers.
Amazon pushed back against the allegations in a lengthy statement. The company said that the average cost-per-click for its Sponsored Products search ads was flat between 2019 and 2024 when adjusted for inflation. Amazon also disputed the claims about its soft reserve system and other parts of the lawsuit. The company stated that it has provided advertisers with guidance about its auctions and pricing in the main tools they use to manage campaigns, and that it continues to update that guidance. Amazon said it looks forward to making its case in court.
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