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According to the lawsuit, formally lodged on Monday, this alleged scheme has cumulatively enriched Amazon by an estimated $20 billion from its advertising customers since 2019. The complaint, filed in Amazon’s home state of Washington, asserts that Amazon actively "overrides and replaces the actual auction results with higher prices set by Amazon to increase its profits." This assertion paints a picture of a deliberate strategy to boost revenue by distorting the competitive bidding process.
In a swift response to the allegations, Amazon vehemently "strongly disagrees" with the premise that it has misled advertisers. A statement issued to the BBC characterized the lawsuit as "misguided," signaling the company’s intent to vigorously defend its practices.
Beyond the direct impact on advertisers, the FTC, acting as a crucial U.S. consumer watchdog, and the participating states contend that Amazon customers have also borne the brunt of these alleged price manipulations. The complaint argues that the extra costs incurred by advertisers are ultimately passed on to consumers in the form of higher prices for goods and services. "Consumers are suffering, have suffered, and will continue to suffer substantial injury as a result," the legal filing unequivocally states, a claim that Amazon has met with immediate and forceful pushback.
Amazon countered this assertion by stating, "The FTC wants the public to believe this case is about higher prices for consumers. It is not." This direct rebuttal aims to reframe the narrative, suggesting the lawsuit’s focus on consumer harm is inaccurate.
The repercussions of the lawsuit were immediately visible in the financial markets, with Amazon’s shares experiencing a decline following the announcement. The company’s stock closed 2.5% lower on Monday, reflecting investor concern over the potential legal and financial ramifications of the allegations.
At the heart of the legal dispute lies Amazon’s extensive advertising business, a critical revenue stream for the company. Numerous brands and third-party sellers actively compete on Amazon’s platform to secure prime placement for their products through Sponsored Product ads and Sponsored Brands ads. These coveted ad slots appear when consumers utilize keywords to search for products on Amazon’s vast e-commerce marketplace. The allocation of these lucrative placements is determined through an auction system, where the highest bidder typically wins the advertising space.
The complaint meticulously details how Amazon allegedly charges advertisers more than is warranted in a practice described as "second price" auctions. In a standard second-price auction, advertisers are led to believe they will pay only one cent more than the next highest bidder for each auction they win. However, the lawsuit alleges that Amazon has systematically deviated from this model. In practice, the complaint claims, Amazon has charged its Sponsored Products advertisers their own winning bid amount nearly 80% of the time. This deviation from the expected auction mechanics effectively means advertisers are paying significantly more than anticipated, directly benefiting Amazon’s bottom line.
The lawsuit further postulates that Amazon’s alleged decision to alter its auction practices was driven by its dissatisfaction with the existing revenue generated by its advertising auctions. The company, it is claimed, sought to maximize its profits by imposing higher costs on advertisers.
Amazon, in its defense, maintains that the FTC "fundamentally misunderstands how advertisers operate." The company’s statement argues that advertisers’ bidding strategies are dictated by real-world performance metrics and the effectiveness of their campaigns, rather than solely by the described mechanics of auction systems. "Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics," Amazon asserted. Furthermore, the company presented data to counter the lawsuit’s claims, stating, "Average winning bids fell 50% from 2019 to 2025 on Sponsored Products search ads, and roughly 92% of placed ads are not given to the highest bid." This suggests a more complex bidding environment and potentially contradicts the FTC’s assertion of a rigged system.
This legal confrontation is not Amazon’s first encounter with the FTC. In a significant development last year, Amazon reached a settlement with the consumer watchdog over allegations that the company had enrolled millions of consumers into its Prime subscription service without explicit consent. The FTC’s prior case also alleged that Amazon had deliberately made it difficult for consumers to cancel their Prime memberships. That settlement resulted in Amazon paying $2.5 billion, a sum that encompassed both civil penalties and provisions for consumer refunds, highlighting a pattern of regulatory scrutiny regarding the company’s business practices. The current lawsuit represents a new and substantial challenge for Amazon, focusing on its vast advertising empire and its alleged impact on both businesses and consumers. The outcome of this legal battle could have far-reaching implications for online advertising markets and the broader regulatory landscape governing major tech platforms.
George Anjay
Nakalama John
Ramos Leo