The FTC sues Amazon over alleged $20 billion scheme to raise marketplace ad prices

The Federal Trade Commission and 22 states have filed a lawsuit against Amazon, alleging that the company engaged in a scheme to raise ad prices on its marketplace over a period of years. The FTC and state attorneys general claim that Amazon made undisclosed changes to its ad-auction system, which led to advertisers paying more than they expected.

The lawsuit specifically targets the pricing of Sponsored Products, Sponsored Brands, and Sponsored Display ads, which are used by sellers to promote their products on Amazon's search results and product pages.

According to the complaint, Amazon allegedly introduced a "soft reserve" mechanism in 2018 that raised the final price of ads after the auction had ended. This internal pricing tool allowed Amazon to set a higher minimum price for certain ads, even after the bidding had concluded. The FTC alleges that Amazon used this approach in approximately 70% to 80% of auctions, with the practice becoming increasingly common in recent years.

During major shopping periods, such as the holiday season, the company reportedly imposed larger surcharges on ad prices.

The lawsuit claims that the pricing adjustments disproportionately affected about 1.2 million advertisers, generating over $20 billion in additional charges. Amazon disputes these allegations, stating that its ad system prioritizes relevant ads and considers factors beyond bid prices, such as relevance and conversion rates. The company argues that advertisers focus on real-world performance metrics rather than solely on the technical structure of the auction.

Amazon claims that its system benefited advertisers by saving them over $8 billion between 2021 and 2025, while maintaining flat inflation-adjusted ad costs and improving conversion rates.

FTC Chairman Andrew Ferguson emphasized that the pricing changes ultimately pushed up costs for sellers, leading to higher prices for consumers, including essential products like food and groceries. The lawsuit is the latest in a series of actions taken by the FTC against Amazon, including a $2.5 billion settlement in a separate case involving Amazon's Prime enrollment and cancellation practices, and a $30 million settlement in 2023 over privacy practices related to Alexa and Ring.

Despite these allegations, Amazon maintains that the FTC's claims misunderstand how advertisers operate and that its ad system benefits both advertisers and consumers.