The FTC and 22 states sue Amazon over a hidden ad fee that hit 80% of auctions

The Federal Trade Commission and attorneys general from 22 states sued Amazon on August 31, 2026, accusing the company of running a hidden advertising surcharge that pushed the share of Sponsored Products auctions where advertisers ended up paying their own top bid to nearly 80% by 2024. The complaint, filed in the U.S. District Court for the Western District of Washington, alleges Amazon told advertisers they were bidding in competitive “second price” auctions while secretly layering an internal price floor on top of the results starting in 2019.

Regulators say the practice extracted tens of billions of dollars from advertisers since it began, costs the government contends were largely absorbed by shoppers paying more for products sold through the platform. Amazon has rejected the allegations outright, setting up a fight over how one of the internet’s largest ad marketplaces actually prices its auctions.

A soft reserve price hidden inside the auction

According to the federal complaint, Amazon calculated advertiser charges in two stages. It first ran a genuine second-price auction to produce what the filing calls a “GSP CPC,” then transformed that figure into a higher final charge by applying what the company internally labeled a “soft reserve price.” The complaint describes this as a price floor applied after bidding closed rather than disclosed to advertisers beforehand, meaning sellers had no way to know a competitive auction result was being adjusted upward before they were billed.

New York Attorney General Letitia James’s office, one of the 22 state offices that joined the case, said Amazon had restricted advertisers’ access to their own auction data, so customers who suspected they were being overcharged had no way to check. Her office’s announcement put the total overcharge at more than $20 billion spread across more than 1.2 million advertisers, many of them small and medium-sized businesses selling everyday goods.

The share of rigged auctions climbed from 30% to nearly 80%

The complaint traces a steady escalation. In 2021, advertisers ended up paying exactly their own bid — a sign the soft reserve had overridden the second-highest competing bid — in roughly 30% to 40% of Sponsored Products auctions. By 2022 that figure had risen to about 70%, and by 2024 it reached close to 80%, according to the FTC’s press release on the filing. Regulators argue that climb shows the surcharge was not a stable pricing quirk but a mechanism Amazon tuned upward year over year without telling the advertisers paying for it.

FTC Chairman Andrew N. Ferguson framed the scale of the alleged deception in blunt terms. “When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering,” Ferguson said in the agency’s release. “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.”

California and New York put a dollar figure on the alleged harm

California joined the federal case with its own consumer-protection claims. Attorney General Rob Bonta’s office said in its filing announcement that Amazon obtained more than $20 billion in undisclosed surcharges from advertising customers, a figure that lines up with New York’s tally. “For years, Amazon has misrepresented how it calculates the cost of advertising on its platform,” Bonta said.

Both state offices tied the surcharge to Amazon’s broader advertising business, which generated more than $68 billion in revenue last year. That scale is central to the government’s theory of harm: a surcharge applied across a marketplace that size, even one measured in fractions of a cent per click, compounds into a business line regulators say now rivals entire industries on its own.

The 22 states joining the FTC span the map: 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 commission authorized the suit on a 2-0 vote before it was filed.

Amazon calls the lawsuit “misguided”

Amazon disputed the government’s characterization of its ad business soon after the filing became public. The company told TechCrunch the lawsuit was “misguided” and argued the complaint “fundamentally misunderstands how advertisers operate,” saying its auctions evaluate billions of bids across different placements and formats, which naturally produces varying prices rather than a fixed rate advertisers can predict in advance.

That defense sets up the central factual dispute the Western District of Washington case will have to resolve: whether the price variation Amazon describes is the ordinary noise of a competitive marketplace, or the product of a surcharge the company’s own internal documents, cited in the complaint, worried could cause “irrevocable damage to advertiser trust” if it ever became public. No trial date has been set, and Amazon has not indicated whether it will seek to have the case dismissed or move directly to defending the auction mechanics in court.

This article was produced with the assistance of AI and reviewed by Morning Overview editors prior to publication.

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