FTC lawsuit says Amazon's secret ad floor cost sellers $20 billion

The FTC and 22 state attorneys general sued Amazon on August 31, alleging a secret ad auction surcharge extracted more than $20 billion from 1.2 million advertisers since 2019.

"The surcharge let Amazon reach prices 'beyond what [can] be achieved through advertiser competition,'" the FTC said, quoting an internal Amazon document in its complaint filed in the U.S. District Court for the Western District of Washington.

By 2024, Sponsored Products advertisers paid their own winning bid about 80 percent of the time, the complaint says. Amazon's advertising arm generated $19.8 billion in revenue last quarter, up 26 percent year over year, and roughly $68 billion in 2025. The company's shares fell about 3 percent to near $258 on Monday as the wider market also traded lower.

The case targets the fastest-growing segment of Amazon's business — advertising — which has become essential for sellers to be found on the platform at all. If the FTC prevails, Amazon could face civil penalties, restitution to advertisers, and forced changes to how it discloses auction mechanics, potentially reshaping the economics of its $68 billion ad business.

The complaint alleges Amazon began adding what it internally called a "soft reserve price" in 2019, after years of presenting its ad system as a standard second-price auction. In a second-price auction, the winning advertiser pays one cent more than the next-highest bid. Amazon told more than 500,000 small and medium-sized businesses that this was how its Sponsored Products, Sponsored Brands, and Display Ads worked. The second-price promise mattered because sellers bid differently when they think the system protects them from overpaying.

Instead, the FTC says, Amazon used internal mechanisms to lift prices above what real advertiser competition would have produced. Documents describe a "proxy 2nd price" and an "invented auction participant." The practice allegedly increased pay-per-click prices by as much as 50 percent during major shopping events. New York Attorney General Letitia James said the scheme hit more than 1.2 million advertisers, including hundreds of thousands of small businesses.

Amazon rejects the case. In a response published the same day, the company said the lawsuit is "misguided" and argued that its ad auction used reserve prices to reflect the real value of ad placements. Amazon said the average cost-per-click for Sponsored Products search ads stayed flat from 2019 through 2024 after adjusting for inflation, while conversion rates rose 24 percent from 2021 to 2025. It also said advertisers never paid more than their own bid. That defense now runs into the complaint's central claim: sellers were told they were in one kind of auction while Amazon allegedly operated another.

A regulatory pattern takes shape

This is not Amazon's first FTC fight. In September 2025, the company agreed to pay $2.5 billion to settle allegations that it enrolled millions of consumers in Prime without proper consent and made cancellation difficult — a settlement that included a $1 billion civil penalty and $1.5 billion in refunds. Amazon is also defending a separate antitrust lawsuit alleging monopolistic practices against marketplace sellers, with a trial expected in 2027.

The pressure extends beyond Amazon. In April 2025, the Justice Department won an antitrust ruling against Google over parts of its digital advertising business, with a federal court finding that Google had monopolized open-web ad technology markets. Regulators have decided that online ad infrastructure is no longer too technical for public enforcement. The money moving through those systems is real, and so is the power of the companies setting the rules.

What sellers face now

Sponsored ads are how sellers get found on Amazon at all. Skip the auction and you vanish into search results shoppers never reach — that is why an undisclosed surcharge, if the FTC proves it, does so much damage. Sellers were not choosing between Amazon ads and a neat alternative next door. They were bidding inside the store where their customers already were.

The case will probably take years. The FTC wants money back and changes to how Amazon explains and runs its auctions. Until then, more than a million advertisers are left looking at old invoices and asking a basic question: how much of what they paid went to beat a real rival, and how much went to a price Amazon quietly made up?

This article is for informational purposes only and does not constitute investment advice.