Amazon Sued by FTC and 22 States Over Alleged $20 Billion Advertising Overcharge Scheme

September 1, 2026

Amazon advertising lawsuit — The Federal Trade Commission and attorneys general from 22 states sued Amazon on August 31, alleging the company manipulated its advertising auctions and overcharged more than 1.2 million advertisers by more than $20 billion. Amazon disputes the allegations and says it strongly disagrees with the lawsuit. MAXSHOT.PL/Shutterstock

Amazon is facing a new federal lawsuit accusing the e-commerce giant of secretly manipulating its advertising auctions and overcharging more than 1.2 million advertisers by more than $20 billion.

The Federal Trade Commission and attorneys general from 22 states filed the lawsuit on August 31, alleging that Amazon altered the results of auctions used to determine what businesses pay to advertise products on its shopping platform.

The advertisers allegedly affected include hundreds of thousands of small and medium-sized businesses.

Amazon disputes the allegations. In a statement reported by CNN, the company said it “strongly disagrees” with what it called a “misguided” lawsuit and argued that the government’s claims misunderstand how advertisers behave and how Amazon’s advertising auctions operate.

Lawsuit Targets Amazon’s “Second Price” Advertising Auctions

Businesses selling products through Amazon can pay to have their products and brands advertised to shoppers using the company’s advertising platform.

According to the New York Attorney General’s office, Amazon has represented to advertisers that prices are determined through a “second price” auction. Under that system, advertisers submit blind bids, and the winning advertiser is supposed to pay only the minimum amount necessary to beat the next-highest bid.

Amazon marketing materials cited by the states have described the winner as paying just “one penny more than the next highest bid.”

The lawsuit alleges that Amazon secretly began manipulating that process in 2018.

According to New York Attorney General Letitia James and the coalition, Amazon would submit a higher second-place bid after an auction had closed, effectively replacing the genuine auction result with a higher price for the winning advertiser.

States Say Advertisers Couldn’t See What Was Happening

The lawsuit further alleges that advertisers couldn’t independently determine whether the amount Amazon charged them reflected the actual auction result.

According to the New York Attorney General’s announcement, Amazon withheld auction data that could have allowed advertisers to see whether they were really paying the minimum amount needed to beat the second-highest bidder.

The coalition alleges that this lack of transparency allowed Amazon to increase advertising prices without customers knowing the auction results had been altered.

The states also point to Amazon’s own internal documents.

According to the New York AG, a 2023 internal report from an Amazon economist acknowledged that advertisers would likely submit lower bids if they knew they weren’t participating in a genuine second-price auction.

The lawsuit argues that advertisers instead submitted higher bids because they believed they wouldn’t necessarily have to pay their maximum bid if they won.

More Than $20 Billion in Alleged Overcharges

The FTC and states allege the practices resulted in more than $20 billion in overcharges affecting more than 1.2 million advertising customers.

Other state officials involved in the case have said more than 500,000 of the affected advertisers were small and medium-sized businesses.

The alleged practice was also intensified during some of Amazon’s busiest shopping periods, according to the lawsuit.

The New York Attorney General’s office says Amazon secretly increased advertising prices even further during events such as Black Friday and Prime Day, when competition for shoppers is especially intense.

The coalition argues those advertising costs didn’t necessarily stop with the businesses paying for the ads.

Attorney General James said consumers were likely affected because businesses can incorporate advertising expenses into the prices they charge for products, including groceries, electronics and pharmacy items.

“Businesses depend on Amazon to reach their customers, and they deserve fair prices for ads,” James said in announcing the lawsuit.

Amazon Strongly Disputes the Government’s Case

The allegations haven’t been proven in court, and Amazon is challenging the government’s characterization of its advertising system.

Amazon told CNN that it “strongly disagrees” with the lawsuit and argued that advertisers adjust their bids according to the performance of their advertising rather than relying simply on descriptions of the mechanics behind an auction.

The company also disputed the government’s calculation of advertiser harm.

Amazon said that even under what it considers the FTC’s flawed assumptions, it estimates advertisers saved more than $8 billion between 2021 and 2025 because Amazon’s system considers an advertisement’s relevance rather than simply selecting ads based on bid price alone.

The company also said it provided data to the FTC on multiple occasions and accused the agency of failing to adequately engage with that information.

Those arguments will now be weighed against the government’s allegations as the case proceeds through federal court.

FTC and 22 States Are Seeking Financial Relief

New York is joined in the lawsuit by attorneys general from Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington.

Together with New York, that makes 22 states, along with the Federal Trade Commission.

The coalition alleges Amazon violated federal and state consumer-protection laws, including the FTC Act’s prohibitions involving unfair and deceptive practices and false advertising. New York also alleges violations of its FAIR Business Practices Act.

The states and FTC are asking the court to stop the practices challenged in the lawsuit and award financial relief available under the applicable laws, including penalties, restitution and other damages.

No court has determined that Amazon is liable for the alleged conduct.

Why Amazon Shoppers Could Have a Stake in the Case

Although the lawsuit focuses primarily on businesses purchasing advertising rather than consumers buying products, the states argue the financial impact may extend to ordinary Amazon shoppers.

Advertising is a business expense, and the coalition alleges that sellers passed at least some of the higher costs created by Amazon’s practices along to consumers through product prices.

The New York Attorney General specifically cited essentials including food, groceries and pharmacy products among the categories potentially affected.

Whether the government can prove those allegations—and how much of the alleged advertising overcharge ultimately reached consumers—will be issues to watch as the lawsuit proceeds.

For the more than 1.2 million advertisers the government says were affected, the financial stakes could be considerably more direct. The coalition is seeking restitution as part of the case, but the filing of the lawsuit doesn’t guarantee that individual advertisers will receive refunds or establish how any future compensation would be distributed.