The FTC Suit That Targets Amazon’s Hidden Ad Floor

The FTC and 22 states sued Amazon on Monday for hiding a surcharge that lifted ad prices above its own auction results. The complaint says the practice took more than $20 billion from about 1.2 million advertisers.

Amazon called the case misguided and said advertisers never pay more than their bid. The fight that follows is over the floor under those bids, and whether a court will make Amazon take it out.

A Second-Price Promise on Three Ad Products

The complaint, filed in the U.S. District Court for the Western District of Washington as Case 2:26-cv-03097, covers Sponsored Products, Sponsored Brands, and Sponsored Display. Those are the paid slots that sit next to search results on Amazon.com and the company’s mobile app.

Since launching advertising auctions around 2012, Amazon told customers they were in a generalized second-price auction. The winner, Amazon said, would pay about one cent more than the next-highest bidder, not the full amount of the winning bid. The FTC says Amazon repeated that pitch on its website, in training videos, and through its sales staff.

That promise changes how people bid. In a first-price auction, the winner pays what they bid, so repeat bidders shade down to avoid overpaying. In a second-price auction they can bid closer to what a click is worth, because the runner-up sets the bill. The agency says Amazon sold the second version and ran something closer to the first.

The Commission voted 2-0 to file. The attorneys on the case sit in the FTC’s Northeast Regional office. Joining the agency are Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont, and Washington. The press release says Amazon concealed unfair charges in auction pricing for more than seven years.

Amazon Inserted an Invented Auction Participant

The complaint says the secret work started in 2018, with overcharges counted from 2019. After Amazon ran the auction and knew the winner and the runner-up, it replaced the auction price with a higher figure it set itself. Internally, staff called that figure a “proxy 2nd price” and, in other notes, an “invented auction participant.”

The executive in charge of Amazon Ads put it in writing: the price “isn’t set by an actual bidder,” but by “a proxy 2nd price that we calculate.” Another document said the surcharges let Amazon obtain prices “beyond what [can] be achieved through advertiser competition.” Notes from a 2024 discussion among senior executives, including the head of Amazon Ads and the company’s chief digital economist, called a “clever non-transparent way to charge first price” an “incredibly effective way to drive revenue.”

North Carolina Attorney General Jeff Jackson, a plaintiff, boiled the mechanics down to two bids.

BREAKING: We just sued Amazon over what we believe was a vast, ad-rigging scheme.

We believe Amazon found a way to charge a few extra pennies to an enormous number of transactions, adding up to over $20 billion in illegal charges.

This is about how something becomes a…

— Jeff Jackson (@JeffJacksonNC) August 31, 2026

“If you bid $1 to have your product ‘Sponsored’ and the next-highest bid is $0.50, you should pay about $0.51,” Jackson wrote. “But we believe that Amazon would run the auction, see those bids, and then secretly raise the second-place price so it could charge the winner more.”

Sellers who live on Amazon already treat search as pay-to-play. The live issue is whether they were bidding as if a second-price cushion still sat under the max bid. Amazon staff wrote that many advertisers “bid far higher than what they are willing to pay” because they assumed a generalized second-price auction. Revealing the surcharge, other notes warned, would do “irrevocable damage to advertiser trust” and start a “downward spiral” of lower bids.

THE FIRST-PRICE SHARE IN SPONSORED PRODUCTS

1. 2018: Amazon begins inserting undisclosed reserve prices above second-price results, the complaint says, and gives customers no notice.
2. 2019: Overcharges to advertisers start, and machine-learning relevance models are in use across store ads, Amazon says.
3. 2021: Sponsored Products advertisers pay their own bid 30% to 40% of the time.
4. 2022: That share rises to 70%.
5. 2024: Advertisers pay their own bid about 80% of the time, which the FTC says converted a named second-price auction into a first-price charge.

The complaint says Amazon ramped the surcharge ahead of Prime Day and Black Friday so the jump would not look like a rule change, and that staff gave false answers when advertisers asked whether the auction format had changed. One employee wrote that the hidden charges were “good for Amazon” because “advertisers must pay more for the same advertising.”

$19.8 Billion a Quarter Rides on Those Auctions

The floor sits under a line of business that now prints cash on the scale of a standalone ad company. In results for the second quarter ended June 30, Amazon said advertising services brought in $19.8 billion, and CEO Andy Jassy cited 26 percent year-over-year advertising growth in the same release that showed $200.6 billion in company net sales.

For full-year 2025, advertising services were $68.6 billion, up 22%. Amazon does not break out operating income for ads, so any margin figure is a guess. What the company does report is that ads keep growing inside a retail operation whose North America operating income was $9.1 billion in the second quarter, beside AWS at $16.6 billion.

AMAZON SALES IN THE SECOND QUARTER

Shares fell about 3% after news of the filing. A forced rewrite of the auction would not show up first as a fine. It would show up as lower clearing prices if sellers stop bidding as if a second-price rule still protects them, which is the spiral Amazon’s own notes described.

Amazon Says Advertisers Never Pay Above the Bid

Amazon’s same-day statement called the suit “misguided” and “patently false.” The company says it reviewed about 1.5 million pages spanning six years and that the FTC leaned on a handful of old videos and training clips that were never part of the campaign console.

We strongly disagree with the FTC's claims. See our full response here. https://t.co/kijS00gmjC

— Amazon News (@amazonnews) August 31, 2026

After reviewing approximately 1.5 million pages spanning six years, the FTC leans on a handful of simplified communications to allege a companywide effort to deceive. That is patently false.

Amazon, company statement, August 31, 2026

The company also says it told advertisers as far back as 2018, in the Ad Console Campaign Builder, that a bid is the maximum they could be charged. It describes two reserves. A hard reserve is the minimum to enter an auction and, Amazon says, helps cover costs. A soft reserve is a real-time minimum meant to reflect what a placement is worth. When the winning bid clears both, the advertiser pays the soft reserve, which is less than the bid. When the bid clears the hard reserve but not the soft one, Amazon still shows the ad and charges the bid. “In no scenario does an advertiser pay more than their bid,” the company wrote.

That last sentence is the hinge. The FTC is not alleging a charge above the typed bid. It is alleging that Amazon told people a second-price rule would keep the charge near the runner-up, then used a hidden floor to walk the charge up toward the bid itself.

AMAZON’S COUNTERS ON PRICE AND HARM

• Click costs: From 2019 through 2024, the average cost-per-click remained flat after inflation on Sponsored Products search ads, Amazon said.
• Winning bids: Average winning bids fell 50% from 2019 through 2025, and about 92% of selected Sponsored Products ads were not the highest bid, often by a wide margin.
• Rank order: The mean winning advertiser’s bid is typically about the 128th bid by amount, Amazon said, because relevance now outweighs raw bid.
• Advertiser math: Even on the FTC’s premise that bids stay fixed, Amazon estimates advertisers saved over $8 billion from 2021 through 2025 because relevance, not the top bid, picks the ad.
• Results: Conversion rates rose 24% from 2021 through 2025, and Amazon estimates 58% higher sales and 46% better return on ad spend in 2026 versus ranking by bid alone.

Amazon also says shoppers are 58% more likely to see ads they would consider, cites Kantar for a finding that consumers rate Amazon ads as the most useful, and notes that its complaint reading found consumers mentioned only a handful of times in more than 150 pages, with no data on higher retail prices. The proposed redress, Amazon says, would go to advertisers, not shoppers.

Those two metrics can both be true at once. An ad can win without being the highest bid, because relevance is in the rank score, and the winner can still pay their own bid because a reserve has replaced the runner-up. Ranking and pricing are different levers. The suit is about the second one.

The 1.2 Million Advertisers on the Invoice

The direct bill went to brands and marketplace sellers, including more than 500,000 small and medium-size businesses, the FTC says. A 2022 Amazon study cited in the complaint found that a large share of customers for the most lucrative placements were new or small business owners. They sell groceries, pharmacy goods, clothes, school supplies, and other everyday items.

FTC Chairman Andrew N. Ferguson tied those invoices to checkout prices.

Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers. The FTC under President Trump won’t allow this deception to continue.

Andrew N. Ferguson, FTC Chairman, August 31, 2026 press statement

The complaint estimates the scheme illegally extracted over 20 billion dollars from advertisers. It does not publish an unredacted average surcharge rate in the public text, and it does not walk through a consumer-price study. Amazon has seized on that gap. The political setting is a Republican-led FTC filing anyway, with red-state and blue-state attorneys general on the same caption.

WHO PAID THE SURCHARGE

• Small sellers: More than 500,000 small and medium-size businesses bid into the same auctions as large brands.
• Ad products: Sponsored Products, Sponsored Brands, and Sponsored Display are the three formats named in the complaint.
• States in the caption: Twenty-two attorneys general joined the FTC in Seattle; Texas filed a separate case the same day.
• Commission vote: The FTC authorized the complaint 2-0.

Arizona Attorney General Kristin Mayes said Amazon “built one of the largest advertising businesses in the world on the backs of small business owners who trusted the company to play by its own rules.” New York Attorney General Letitia James said Amazon began submitting fake second-place bids in 2018. Amazon’s reply is that advertisers watch return on spend, not auction theory, and would have cut bids if the ads had stopped paying off.

Texas Opened a Parallel Case in Austin

Texas Attorney General Ken Paxton did not join the Seattle caption. He filed his own suit the same day under the Texas Deceptive Trade Practices Act, and the two cases now sit on separate tracks.

Paxton’s office said hidden surcharges and undisclosed soft reserves pushed the winner’s cost toward the maximum bid by roughly 17% on ordinary shopping days and more than 25% during peak events such as Prime Day. It said those charges generated roughly $4.5 billion in additional ad revenue in 2024 nationwide. More than 18,000 Texas sellers and vendors advertise on the platform, the office said, across billions of auctions, with no record of competing bids or how the price was calculated.

Texas asks for civil penalties of up to $10,000 for each violation and for a court order that Amazon stop describing the auctions inaccurately. It also wants every Texas advertiser to get a record of each auction showing the bids, any surcharge, and the final charge. That last ask is sharper than a generic injunction. If a judge granted it, sellers could see the floor that the FTC says was built to stay invisible.

An Injunction Would Unwind the Hidden Floor

The Seattle complaint seeks a permanent injunction under Section 13(b) of the FTC Act, plus other relief. The states seek injunctions, restitution, disgorgement, civil penalties, and costs. Maryland’s consumer-protection statute, like Florida’s, provides for up to $10,000 per violation. No trial date is set. Amazon has not announced a change to the auction since the filing.

The nearest dollar comparison is last year’s Prime case. In September 2025 Amazon agreed to a $2.5 billion settlement on allegations that it tricked people into Prime and made cancellation hard, paying $1 billion as a civil penalty and $1.5 billion toward consumer refunds of up to $51. Amazon did not admit or deny those claims. This new filing is still a live complaint, not a check.

WHERE EXPERTS DISAGREE

• The FTC and the states: Amazon overrode a promised second-price auction with a hidden reserve, charged advertisers their own bid about 80% of the time by 2024, and took more than $20 billion that was then passed through to shoppers.
• Amazon: Advertisers never pay more than their bid, inflation-adjusted click costs were flat, winning bids fell by half, and the complaint offers no evidence that retail prices rose.
• The behavioral fight: Amazon says bidders follow sales, not auction lectures. Its own internal notes said advertisers were bidding high because they thought a second-price rule still applied, and that telling them the truth would send bids down.

The 2-0 Commission vote sent the complaint to Seattle on August 31. Amazon’s same-day statement is now the company’s defense in a case that asks a federal judge to take the hidden floor out of the auction.

Disclaimer: This article is news reporting and analysis of a filed civil complaint and of Amazon’s public response. It is informational only and is not legal advice, investment advice, or a prediction of how any court will rule. Readers who advertise on Amazon, hold AMZN shares, or face related claims should consult a qualified attorney and, for any trading decision, a licensed financial adviser. Figures, case status, and company statements reflect the sources as of September 2, 2026, and may change as the litigation proceeds.