- US Regulators Target Amazon Over Alleged Hidden Ad-Pricing System Affecting 1.2mn Advertisers
Amazon is facing one of the most consequential regulatory challenges to its fast-growing advertising business after the US Federal Trade Commission and 22 states accused the e-commerce group of secretly manipulating online advertising auctions to extract billions of dollars from businesses buying visibility on its platform.
The lawsuit, filed in federal court in Washington state, alleges that Amazon inflated the prices paid by more than 1.2 million advertisers, including over 500,000 small and medium-sized businesses, through changes to the mechanics of its advertising auctions that customers were not adequately told about. Regulators estimate that the alleged practices may have generated more than US$20 billion in additional charges since 2019.
At the centre of the dispute is the way Amazon determines how much advertisers pay when competing for sponsored positions in search results and product pages. The FTC says advertisers were led to understand that Amazon largely operated a second-price auction, under which the winner would typically pay only slightly more than the next-highest bid rather than the full amount it was prepared to pay.
Regulators allege that Amazon quietly changed that system by introducing what they describe as a “soft reserve price” and an artificial auction participant capable of pushing the final charge above the level produced by genuine advertiser competition. The complaint argues that Amazon effectively inserted a higher internal price into auctions in order to increase advertising revenue.
The allegations strike at one of Amazon’s most important growth businesses. Advertising sales reached US$68.60 billion in 2025, while revenue from the division increased 26.00% in the second quarter of 2026 to US$19.80 billion, placing Amazon behind only Google and Meta among the world’s largest digital advertising platforms.
That scale makes the legal challenge more significant than a conventional dispute over advertising fees. Amazon operates the marketplace where millions of businesses sell products, controls the consumer traffic those businesses seek to reach and also runs the advertising infrastructure through which merchants compete for greater visibility.
The economics of the alleged practice are important because auction design can materially influence advertiser behaviour. Under a conventional second-price system, a business can bid close to the maximum value it places on a customer while expecting to pay only enough to beat the next-highest genuine bidder.
The FTC alleges that this distinction became increasingly blurred. For Sponsored Products advertising, regulators say advertisers paid their own winning bids roughly 30.00% to 40.00% of the time in 2021, rising to about 70.00% in 2022 and approximately 80.00% in 2024.
If established in court, that pattern could raise questions not only about pricing but also about whether advertisers made bidding decisions using an inaccurate understanding of how the auction operated. Automated digital advertising relies heavily on trust because businesses generally cannot observe each individual auction or independently reconstruct the algorithms used to calculate every final charge.
The complaint alleges that Amazon itself recognised the risk that greater transparency could cause advertisers to reduce their bids. Regulators cite internal discussions expressing concern that disclosure could damage advertiser trust and lead businesses to bid less aggressively.
That allegation gives the case broader significance because digital advertising platforms increasingly function as infrastructure rather than simply marketing companies. They determine how businesses compete for customer attention, which products consumers see and how much merchants must pay to remain visible within increasingly crowded online marketplaces.
The FTC also argues that the effects may have extended beyond advertisers. Businesses facing higher marketing expenses could attempt to recover those costs by increasing product prices, meaning part of the alleged advertising surcharge may ultimately have been passed on to consumers.
FTC Chairman Andrew N. Ferguson said Amazon’s advertising customers were misled into paying significantly higher prices and argued that the additional costs were largely transferred to American consumers. That connects the case to a wider regulatory debate over whether dominant digital platforms can use control over marketplaces and algorithms to extract rents from businesses dependent on their infrastructure.
Amazon strongly disputes the allegations and says the FTC has mischaracterised both its advertising technology and its economic impact. The company argues that improvements in targeting, relevance and conversion rates have generated substantial savings for advertisers rather than systematically raising their costs.
Amazon says advertisers saved more than US$8.00 billion between 2021 and 2025 because of improvements to its advertising systems. It also says the average winning bid for Sponsored Products search advertisements fell by 50.00% between 2019 and 2025, while inflation-adjusted cost per click remained broadly flat between 2019 and 2024.
The company has described the suggestion of a business-wide scheme to deceive advertisers as “patently false”. Its defence is likely to focus heavily on whether advertisers received greater commercial value from improved ad performance even where the mechanics of auction pricing evolved.
That distinction could become central to the case. The FTC will have to establish not merely that Amazon changed its auction system or generated more revenue, but that the conduct amounted to unlawful deception or anti-competitive behaviour under US law.
The lawsuit also arrives as Amazon faces broader regulatory pressure. The company agreed last year to pay US$2.50 billion to settle allegations involving Amazon Prime subscriptions and is separately defending an FTC antitrust action concerning its marketplace practices and treatment of third-party sellers.
For investors, the advertising case carries financial as well as regulatory risk. Advertising has become an increasingly important contributor to Amazon’s earnings because digital ads can generate relatively high margins compared with the logistics-intensive economics of conventional e-commerce.
A ruling requiring fundamental changes to auction design could therefore affect the profitability of a business generating tens of billions of dollars annually. Regulators could also seek refunds, civil penalties or other remedies, with the FTC indicating that potential financial exposure could run into tens of billions of dollars.
The wider implications extend across the technology industry. Google, Meta, Amazon and other large platforms increasingly control both access to digital audiences and the systems through which businesses purchase that access, giving regulators greater reason to examine how opaque algorithms influence pricing.
The Amazon case could therefore become an important test of whether algorithmic pricing systems are subject to the same expectations of transparency and fair dealing as more conventional marketplaces. If regulators succeed, the consequences may stretch well beyond one company’s advertising revenues.
For Amazon, the immediate issue is whether its auction architecture complied with US competition and consumer-protection law. The deeper question is how much pricing discretion a dominant digital marketplace should be permitted to exercise when the businesses paying for access cannot independently see how that price is being produced.
With advertising now one of Amazon’s largest and fastest-growing businesses, the answer could reshape not only the company’s relationship with advertisers but also the regulatory boundaries around the digital advertising economy.
