Amazon is facing one of the biggest challenges yet to its booming advertising business after the Federal Trade Commission and 22 states filed a sweeping lawsuit accusing the company of secretly manipulating ad auctions and extracting billions of dollars from businesses using its platform.
The lawsuit, filed Monday in federal court in Washington state, alleges that Amazon covertly increased the minimum prices advertisers were required to pay for prominent placements across its online marketplace.
Regulators say the alleged practices cost advertisers $20 billion or more.
Amazon strongly denies the accusations.
The case focuses on the digital auctions that determine which sponsored products and advertisements shoppers see when searching Amazon’s website and mobile app.
Businesses compete in those auctions for valuable positions beside product search results.
According to the FTC, Amazon told advertisers that many of those auctions effectively operated under a system in which the winning advertiser would pay only slightly more than the next-highest bidder.
But regulators allege Amazon secretly intervened in the process.
The FTC says Amazon imposed undisclosed pricing mechanisms that pushed advertisers’ costs higher than they otherwise would have been.
The complaint alleges that some form of Amazon intervention occurred in as many as 80% of sponsored-product advertising auctions.
More than one million brands and sellers may have been affected over a period lasting more than seven years, according to the FTC.
That includes more than 500,000 small and medium-sized businesses.
FTC Chairman Andrew Ferguson accused Amazon of misleading businesses into paying significantly more for advertising while those additional expenses ultimately made their way into prices paid by consumers.
The government is seeking monetary relief and other penalties.
The scale of the case matters because advertising has become an increasingly important part of Amazon’s financial empire.
Amazon is now the world’s third-largest digital advertising company behind Google and Meta.
Its advertising sales jumped 26% during the second quarter of 2026 to $19.8 billion after reaching $68.6 billion for all of 2025.
Those numbers make the allegations particularly consequential.
This is no longer a small side business inside an online retailer.
Advertising is now one of Amazon’s major profit engines.
Amazon responded Monday by rejecting the government’s allegations.
The company said its advertising system is designed to display the most relevant advertisements to shoppers and argued that its pricing policies have benefited rather than harmed advertisers.
Amazon said average advertising cost per click remained flat between 2019 and 2024 while sales generated from those clicks increased.
The company also said average winning bids for sponsored-product search advertisements fell substantially between 2019 and 2025.
The two sides are therefore presenting sharply different pictures of the same advertising marketplace.
Federal regulators describe a system in which Amazon quietly changed auction economics in its own favor.
Amazon portrays a highly competitive advertising platform that became more efficient for sellers.
A federal court will now have to sort through those claims.
The lawsuit comes as Amazon continues facing substantial scrutiny from regulators over its power in e-commerce and its relationship with third-party sellers.
The company’s shares fell roughly 2.5% Monday as investors absorbed the latest legal threat.
The financial consequences could extend well beyond a single day’s market reaction.
If regulators prove that Amazon systematically inflated advertising costs across millions of auctions, the case could produce enormous financial penalties while forcing changes to one of the company’s fastest-growing businesses.
What Happens Next
Amazon is expected to fight the case in federal court. The key questions will involve how its advertising auctions operated, what advertisers were told and how much financial harm regulators can prove.
