The Federal Trade Commission and 22 states have sued Amazon, alleging that it overcharged by 3 trillion yen by inflating the winning bids for advertising space auctions.

The U.S. Federal Trade Commission (FTC) and the attorneys general of 22 states have jointly filed a lawsuit against Amazon, alleging that it defrauded advertisers. The lawsuit claims that Amazon may have manipulated advertising prices and defrauded advertisers of more than $20 billion (approximately 3.2 trillion yen). Amazon has refuted the allegations, calling them 'clearly false.'

FTC, States Sue Amazon Over Secret Ad Surcharge Scheme | Federal Trade Commission
https://www.ftc.gov/news-events/news/press-releases/2026/08/ftc-states-sue-amazon-over-secret-ad-surcharge-scheme

Federal Trade Commission and 22 states sue Amazon over inflated advertising prices - The Washington Post
https://www.washingtonpost.com/business/2026/08/31/amazon-ad-lawsuit/3e672a94-a585-11f1-9e38-f705d048bd5a_story.html

FTC sues Amazon, accusing the e-commerce giant of misleading advertisers
https://www.cnbc.com/2026/08/31/amazon-ftc-lawsuit-advertisers.html

According to the FTC, Amazon may have secretly inflated advertising prices on its platform for more than seven years, potentially defrauding unsuspecting advertisers of over $20 billion.

FTC Chairman Andrew N. Ferguson stated, 'When one of the world's largest online retailers engages in unfair and dishonest practices, the consequences are immeasurable. Millions of advertisers have been misled by Amazon into paying exorbitant amounts, and the majority of those costs are being passed on to American consumers. The FTC under President Trump will not stand idly by while these wrongdoings continue.'

The problem lies in the advertising space auction system. In a typical auction, the first-price system, where the winning bidder pays the full amount, carries the risk of bids being higher than the fair value. Therefore, 'bid adjustments' are made to allow bidders to lower their bids to understand the minimum price. However, in a second-price system, where the winning bid is determined based on the second-highest bid, there is a tendency for bidders to bid higher amounts that are closer to the true value.

Amazon employs a second-price auction system for its ad space, where the winning advertiser pays not the winning bid, but just one cent (approximately 1.6 yen) higher than the second-highest bid. Amazon describes this system as a 'General-Purpose Second-Price (GSP) auction' in its media kits and sales presentations, and it has been widely accepted by advertisers as the 'industry standard for digital ad space.'

However, since 2019, Amazon has been changing auction rules without notice and adding an undisclosed additional fee, which it internally calls a 'soft reserve,' causing advertisers to pay more than the winning bid determined by the GSP auction.

The lawsuit quotes an Amazon Ads executive as saying that '(the amount advertisers pay) is not determined by actual bidders, but by a fictitious second-place price calculated by Amazon.' Another document cited in the lawsuit confirms that Amazon uses fictitious auction participants to inflate prices. Furthermore, another Amazon employee is quoted as saying that by adding extra fees, it is possible to obtain prices that 'exceed levels achievable through competition among advertisers.'

Amazon understood that the existence of additional fees would provoke a backlash from advertisers, so over the years, changes made without prior notice were kept secret, and the additional fees were carefully and gradually increased to avoid the inflated prices becoming too obvious.

In particular, the lawsuit points out that in 'sponsored products' advertising, the percentage of advertisers who pay the winning bid amount itself was 30% to 40% in 2021, and is projected to increase to 70% in 2022 and approximately 80% in 2024.

In addition to the FTC, 22 states—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—have joined the lawsuit, alleging that Amazon has violated federal and state consumer protection laws, and are seeking civil penalties, damages, and other unspecified damages.

On the other hand, Amazon countered that the FTC's claims were 'clearly false.' They argued that they do not do anything that harms consumers or advertisers, and that the average cost per click for the 'sponsored products' ads in question remained flat even after adjusting for inflation, while conversion rates increased, meaning advertisers were able to earn more while paying the same amount.

Furthermore, Amazon is prioritizing ad relevance over bid amount, with the average winning bid for 'Sponsored Products' ads falling by 50% between 2019 and 2025, and approximately 92% of the ads displayed not coming from the highest bidder. On the other hand, higher ad relevance has increased the likelihood of users seeing and clicking on ads for products they are considering purchasing by 58%.