Amazon.com (AMZN) shares fell roughly 3% after the Federal Trade Commission and 22 states filed a lawsuit accusing the company of secretly inflating advertising prices.
The lawsuit, filed Monday, claims Amazon spent more than seven years quietly raising prices that advertisers paid through its online ad auctions without their knowledge.
Regulators allege the scheme affected more than 1 million brands and sellers and may have generated tens of billions of dollars in additional revenue for Amazon.
Every time a shopper searches for a product on Amazon, merchants compete in auctions to place ads in front of consumers browsing the platform.
The FTC says Amazon began altering its ad auction strategy in 2018, raising prices on advertisers in a manner deliberately designed to go unnoticed.
To inflate prices, Amazon allegedly began entering its own bid, known as a “soft reserve,” set higher than the runner-up bidder, which under auction rules raised the final price paid.
Regulators claim Amazon concealed this practice because disclosing it could have prompted advertisers to lower their bids, cutting directly into the company’s revenue.
The alleged practice increased pay-per-click prices by as much as 50% during major shopping events, according to the complaint.
The FTC and the states allege the scheme has likely netted Amazon $20 billion from advertising customers since 2019, with consumers also harmed as extra costs were passed on to shoppers.
“This bait and switch betrayed advertisers’ trust and extracted billions of dollars at their expense,” FTC Chairman Andrew Ferguson said. “Amazon imposed this elaborate scheme on Americans for a simple reason: it wanted more money.”
The lawsuit centers specifically on Amazon’s Sponsored Products ads, Sponsored Brands ads, and Display ads that appear alongside its search results.
The 22 states joining the FTC include 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.
Amazon pushed back firmly, saying it “strongly disagrees” with the premise that it misled advertisers and called the suit “misguided.”
“Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics,” Amazon said in a statement responding to the allegations.
“Average winning bids fell 50% from 2019 to 2025 on Sponsored Products search ads, and roughly 92% of placed ads are not given to the highest bid,” the company added.
Advertising has become one of Amazon’s fastest-growing business segments, generating approximately $68 billion in revenue during 2025 alone.
The business has evolved into a critical revenue pillar for Amazon alongside its dominant cloud computing unit, Amazon Web Services, and its core online retail operations.
Investors are now weighing the potential penalties and longer-term risks this lawsuit poses to Amazon’s expanding and highly profitable advertising division.
Amazon is also scheduled to face trial in February 2027 as part of a separate sweeping federal antitrust case led by the FTC and 17 states, which accuses the company of undermining competition and exerting “monopoly power” over third-party sellers.
The compounding legal pressure from multiple fronts is increasingly drawing scrutiny from Wall Street analysts monitoring the company’s regulatory exposure heading into the coming years.
