US watchdog and 22 states sue Amazon over alleged ad auction manipulation

The US Federal Trade Commission and a bipartisan coalition of 22 states filed a lawsuit on Monday accusing Amazon of secretly overcharging more than a million advertising customers. The regulators allege the company manipulated the online auctions used to set digital ad prices, a scheme that has reportedly generated $20bn in extra revenue since 2019.

Brands and sellers typically compete for Sponsored Product and Sponsored Brands placements through a second-price auction system. Under this model, advertisers expect to pay just one cent more than the next highest bidder for a winning keyword search.

The complaint argues Amazon routinely ignored this structure because it was dissatisfied with its advertising auction revenue. Instead of charging the second-highest price, the company allegedly charged advertisers their full winning bid close to 80 per cent of the time. "Amazon overrides and replaces the actual auction results with higher prices set by Amazon to increase its profits," the filing states.

Regulators argue this artificial inflation ultimately harms everyday shoppers, as sellers pass the extra advertising costs onto consumers. "Consumers are suffering, have suffered, and will continue to suffer substantial injury as a result," the complaint asserts. For European investors and market watchers, the lawsuit highlights the growing vulnerability of major technology revenue engines to antitrust actions on both sides of the Atlantic.

Amazon has pushed back forcefully against the allegations, calling the lawsuit "misguided" and stating it "strongly disagrees" with the premise that it misled advertisers. The company argued that the watchdog "fundamentally misunderstands how advertisers operate" and that bids are adjusted based on real-world performance rather than auction mechanics.

Defending its pricing model, Amazon noted that average winning bids for Sponsored Products search ads fell 50 per cent between 2019 and 2025. The company also claimed that roughly 92 per cent of placed ads are not awarded to the highest bidder, rejecting the idea that the system is rigged.

The market reacted negatively to the legal action, with Amazon's shares closing 2.5 per cent lower on Monday. This is not the company's first major clash with the consumer watchdog, following a $2.5bn settlement last year over allegations it made it difficult for users to cancel Prime subscriptions.