If you've been running Sponsored Products campaigns on Amazon, you may have just discovered that the auction you thought you were bidding in was never quite what it appeared to be. On August 31, 2026, the Federal Trade Commission fired one of the largest shots in digital advertising history — and every brand, agency, and e-commerce seller needs to understand what it means for their strategy right now.
The Core Allegation: A $20 Billion Hidden Surcharge
The Federal Trade Commission sued Amazon, alleging the e-commerce giant "secretly and systematically overcharged" advertisers on its platform by manipulating its pricing and auction systems.
The lawsuit, which was joined by 22 state attorneys general, argues that Amazon may have reaped more than $20 billion from advertisers by using "hidden surcharges" dating back to a change to its auction rules that took effect in 2019.
The complaint cites three separate advertising products at issue: Sponsored Products, Sponsored Brands, and Sponsored Display.
In other words, this isn't a niche corner of Amazon's business — it's the bread and butter of every brand that has ever advertised on the platform.
FTC Chairman Andrew Ferguson stated that Amazon's ad auction system misled over 1.2 million advertisers, including more than 500,000 small- and medium-sized businesses.
"Amazon has millions of advertising customers who were misled into paying significantly higher prices," FTC Chairman Andrew Ferguson said. "These higher costs were largely passed on to American consumers."
How the Alleged Manipulation Worked
To understand the gravity of this case, you need to understand the mechanics of what the FTC is alleging.
Amazon has traditionally used a "second-price" auction system, wherein it told advertisers they "only pay the least bid amount needed in order to win," according to the complaint, citing Amazon's own marketing materials.
Think of it like an eBay auction: you bid your maximum, but you only pay just above what the next-highest bidder offered.
The FTC alleges that Amazon in 2019 changed its auction rules without notice by adding an undisclosed surcharge it referred to as a "soft reserve price," which led to higher ad prices.
The alleged mechanism was "soft reserve pricing" — an undisclosed floor that replaced genuine second-price outcomes with a proxy value Amazon calculated itself. An Amazon Senior Scientist described it internally as "an invented auction participant representing how much Amazon thinks that particular ad slot is worth."
The impact of this "phantom bidder" grew dramatically over time.
For Sponsored Products ads, the complaint alleges that the percentage of the time advertisers paid the amount of their bid increased from between 30% and 40% in 2021, to 70% in 2022, and to approximately 80% in 2024 as a result of the surcharges.
In plain terms,
the lawsuit alleges that Amazon's "second-price" auction model was manipulated, allowing the company to impose hidden surcharges and effectively convert it into a first-price auction.
Even more damaging is what internal documents allegedly show.
The complaint quotes notes from a 2024 discussion between senior executives, including the head of Amazon Ads and Amazon's Chief Digital Economist, where it was acknowledged that Amazon's "clever non-transparent way to charge first price" has been an "incredibly effective way to drive revenue."
Amazon's Defence: Savings, Not Overcharging
Amazon has pushed back hard — and its counter-arguments deserve serious consideration.
The company called the lawsuit "misguided" and said the FTC's complaint "fundamentally misunderstands how advertisers operate," arguing that advertisers optimize based on real-world campaign performance, not auction architecture descriptions.
From 2019 through 2024, the average cost-per-click for Amazon's Sponsored Products search ads remained flat adjusted for inflation, while conversion rates grew 24% from 2021 to 2025. Advertisers paid the same and got more as we meaningfully improved ad relevancy and therefore performance
, Amazon stated.
Amazon also said average winning bids fell by half from 2019 to 2025 and challenged the suit's allegations regarding highest winning bids, saying it prioritized the relevancy of the ad over the price bid 92% of the time when selecting an ad, with estimated savings for advertisers of more than $8 billion between 2021 and 2025.
Both sides can't be right. That contradiction is precisely what a federal court in Seattle will now untangle.
The Broader Implications for Digital Advertising
Regardless of how the case is ultimately decided, the FTC vs. Amazon lawsuit is already reshaping the digital advertising landscape in three critical ways.
1. Retail Media Networks Are Now Under the Microscope
If the FTC prevails, the consequences extend well beyond Amazon. Retail media networks across the industry — Walmart Connect, Instacart Ads, and their peers — could face pressure to fully disclose any reserve pricing, proxy bidding, or post-auction price adjustments they currently treat as proprietary.
US retail media ad spend is projected to hit $69.33 billion in 2026, up 17.9% year over year.
That's an enormous pool of advertiser money flowing through auction systems whose mechanics have, until recently, been largely opaque.
2. New Transparency Standards Are Already in Motion
The industry wasn't waiting for a lawsuit to act.
In January 2026, the Media Rating Council (MRC) released the Digital Advertising Auction Transparency Standards, introducing the most comprehensive framework yet for explaining how digital ad auctions work. For advertisers, this marks a turning point. Until now, media buying across search, social, programmatic, connected TV, and retail media has relied on opaque, platform-specific auction rules.
What makes 2026 different from every prior year: the MRC published the final Digital Advertising Auction Transparency Standards, covering search, social, programmatic, retail media, CTV, and streaming. For the first time, retail media networks can be audited on whether they disclose fees, bid multipliers, relevance scoring, and floor pricing.
3. Amazon's Advertising Business Is Too Big to Ignore
Whatever happens in court, advertisers cannot simply walk away from Amazon.
Amazon generated $68.6 billion in advertising revenue during 2025, an increase of 22%. In the second quarter of 2026, ad revenue rose 26% to $19.8 billion.
Amazon has amassed the third-largest digital advertising business globally, trailing only Google and Meta.
Pulling budgets entirely isn't a realistic option for most brands. Optimising how you spend on the platform — with new scrutiny — absolutely is.
Practical Tips: What to Do With Your Amazon Advertising Strategy Right Now
The question isn't whether this lawsuit matters to your business. It does. The question is what you do next. Here are actionable steps you can take immediately:
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Audit your historical CPC data. Pull your cost-per-click reports from 2019 to present. If you have been bidding aggressively based on the assumption of a true second-price auction, your historical bids may have been systematically set higher than necessary.
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Understand bid shading.
In a sealed first-price auction, where winners pay the amount of their winning bid, bidders run the risk that they might overbid. So, in repetitive auctions for the same goods, they will often reduce their bid to determine the minimum amount needed to win. This is called bid shading.
Start applying this logic to your Amazon campaigns now.
- Diversify your retail media spend.
Advertisers who understand they are in a first-price system shade their bids downward to avoid overpaying — a behaviour Amazon's internal documents acknowledge it actively worked to prevent.
Protecting your budget means spreading spend across Walmart Connect, Target Roundel, and other retail media networks, and closely monitoring relative ROAS across each.
- Demand auction transparency from every platform. Armed with the new MRC standards, ask your platform reps and agency partners specifically how reserve pricing, relevance scoring, and bid multipliers affect what you actually pay.
Advertisers can now validate outcomes, improve bidding strategies, and reduce waste or unpredictability tied to hidden auction rules.
- Switch to performance-based bidding goals.
Retail media held a 6.1x ROAS for five consecutive quarters through Q1 2025, but incrementality — not ROAS — is the KPI that separates leaders from laggards in 2026.
Focus on incremental sales lift rather than blended ROAS to truly understand what your Amazon ad spend is delivering.
- Document everything. If the FTC wins its case, there is a real possibility of advertiser restitution claims. Keep detailed records of your campaign spend, bid strategies, and any communications from Amazon about how its auction system works.
Conclusion: The Era of Opaque Ad Auctions Is Over
The FTC vs. Amazon case is more than a legal dispute between a regulator and a tech giant. It is a watershed moment for the entire digital advertising industry — a stark reminder that when platforms control the auction rules, the bidding data, and the reporting, advertisers are operating on faith rather than facts.
The FTC's case is that better performance does not remove Amazon's responsibility to explain its pricing accurately.
That principle should resonate with every marketer, regardless of which side wins in court. You deserve to know exactly what you're paying for — and why.
Whether you're a Fortune 500 brand or an independent seller, now is the time to pressure-test your Amazon advertising assumptions, build a more diversified retail media strategy, and demand the auction transparency that has been missing for years. The rules of the game may be changing. Make sure your strategy changes with them.
Ready to take control of your digital advertising spend before the next court ruling lands? Contact our team today for a free Amazon ad audit and a diversified retail media strategy tailored to your brand.
