Federal and state regulators portray Amazon’s ad marketplace as a concealed overcharging scheme that squeezed businesses and, ultimately, shoppers. Amazon counters that its reserve prices reflected the value of ad space, improved results and caused no harm to advertisers or consumers.

The Federal Trade Commission and 22 states filed suit in federal court in Washington, alleging Amazon has secretly manipulated the auctions that determine advertising prices since 2019. The coalition says roughly 1.2 million advertisers were told they were participating in competitive “second-price” auctions — where the winner pays only slightly more than the next-highest bid — while Amazon was quietly substituting higher prices of its own.¹

According to the complaint, the company introduced what it internally called a “soft reserve price”: an undisclosed threshold that could replace the auction’s actual second price. Regulators say the system was deliberately hard for advertisers to detect and generated more than $20 billion in excess charges over seven years. The alleged surcharges applied across Sponsored Products, Sponsored Brands and Sponsored Display ads, often when shoppers clicked an ad.²

California Attorney General Rob Bonta framed the case as protection for smaller sellers, saying Amazon had “rigged billions of ad auctions, inflating Amazon’s profits at the expense of Americans who rely on Amazon’s advertising to generate business.”¹ The FTC’s broader argument is that higher seller costs can narrow margins and filter through to consumer prices.

Amazon calls that account “misguided” and says the agency built its case from “a handful of simplified communications” after reviewing about 1.5 million pages of records.² It does not deny using reserve prices, but says they are real-time estimates of an ad placement’s market value. Under its system, Amazon says, advertisers never pay more than their maximum bid; the company also argues inflation-adjusted average cost-per-click stayed flat from 2019 through 2024.

The lawsuit seeks an injunction, civil penalties and monetary relief. At stake is not merely how Amazon prices ads, but whether an auction can be called competitive when the platform running it inserts its own hidden benchmark.