By Hank Russell
Attorney General Letitia James joined 21 attorneys general and the Federal Trade Commission (FTC) in a lawsuit against Amazon. The lawsuit claims that the company secretly overcharged its advertising customers more than $20 billion by manipulating the system that it uses to set prices for ads on its e-commerce website. In addition, the lawsuit alleges that Amazon has violated numerous federal and state laws with this scheme, including New York’s FAIR Business Practices Act, which protects against deceptive, abusive, and unfair business acts.
According to the suit, Amazon claims that its ad prices are set by “second price” auctions in which the winning bid only pays the minimum amount needed to beat the second-highest bid. However, in 2018, Amazon began manipulating these auctions by submitting fake second-place bids to charge advertisers more than they should have been paying. As a result of Amazon’s scheme, more than 1.2 million advertisers, including hundreds of thousands of small and medium-sized businesses, were overcharged more than $20 billion.
“Sellers on Amazon incur substantial costs in the form of fees and surcharges to participate and advertise on Amazon’s leading e-commerce platform,” the lawsuit says. “A significant portion of these costs, including the advertising costs paid by Amazon sellers, are ultimately passed through to and paid by Amazon shoppers in the form of higher prices.”
The lawsuit further states, “While many of Amazon’s fees or surcharges are disclosed to its customers, Amazon does not disclose that its auction pricing has ‘a surcharge hidden in it.’ In fact, Amazon actively conceals this information from its customers to avoid “irrevocable damage to advertiser trust” and a ‘downward spiral’ of advertisers lowering their bids or decreasing their advertising spending with Amazon.”
Since 2012, Amazon has sold ads on its website for businesses to advertise their products and brands. Prices for Amazon’s ads are set by an auction process in which potential advertisers submit blind bids and are ranked by a combination of their bid and their ad’s relevance to the shopper’s search. To ensure fair prices, Amazon has consistently told advertisers that the winning bidders are charged only the minimum amount necessary to beat the second-highest bid. As Amazon’s marketing materials claim, auction winners pay just “one penny more than the next highest bid.”
An investigation by James and the coalition revealed that Amazon submits a higher second-place bid after the auction closes to inflate the price that the winning bidder must pay. The company allegedly prevents advertisers from seeing auction data in order to keep the results hidden and manipulate prices without advertisers’ knowledge. This means that advertisers have no way to know whether the price they are charged is actually the minimum amount needed to beat the second-place bid or instead an inflated amount set by Amazon, thereby overcharging the advertisers.
James and the coalition found that Amazon allegedly secretly raises ad prices even higher on special shopping days such as Black Friday or Prime Day.
The coalition alleges that Amazon has spent years intentionally misleading its advertising customers to hide its deceptive scheme and convince advertisers that the auctions are genuine. Internal documents from Amazon reveal that the company takes advantage of the fact that advertisers believe the auctions are fair and therefore bid higher because they assume they will not have to pay the full price of their bid if they win. In a 2023 internal report, an Amazon economist noted that advertisers would likely submit lower bids if they knew they were not actually competing in a real second-price auction.
The lawsuit claims Amazon violated federal and state consumer protection laws, including violations of the FTC Act banning unfair and deceptive business practices and false advertising, as well as New York’s FAIR Business Practices Act. It also seeks a court order barring Amazon from continuing these tactics and requiring the company to pay penalties, restitution, and other damages to the states and federal government.
Joining Attorney General James in filing this lawsuit are FTC and the attorneys general of 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.
“Businesses depend on Amazon to reach their customers, and they deserve fair prices for ads,” James said. “Consumers across the country are likely paying more for everything from groceries to electronics because Amazon has wrongfully inflated its ad prices. Deceptive practices like this hurt consumers and small businesses, and we are taking Amazon to court to get justice for those who were harmed.”
Long Island Life & Politics reached out to Amazon. The company called the lawsuit “misguided” and refuted the FTC’s claims that advertisers overpaid because they did not understand the bidding process. According to the company, advertisers saved more than $8 billion between 2021 and 2025.
“Not only do we properly describe our pricing and auctions to advertisers, but this claim fundamentally misunderstands how advertisers behave,” Amazon said in a statement. “Advertisers adjust bids based on real-world outcomes, not descriptions of auction mechanics.”
Amazon also claimed that the FTC “cherry-picked a small number of materials,” including older educational and training materials and videos showing how the auctions work. “These were generally low-reach, low-engagement materials that were never part of the advertiser campaign management console,” Amazon said. “When we discovered them, we either removed or updated them.”
The company said they have shared the “data, the industry context, the evidence of how advertisers actually behave, and the information showing our auction works as intended” with the FTC “on multiple occasions,” but the agency has “shown little interest in engaging with the facts and appear more focused on trying to secure a substantial monetary victory for themselves and states they can lure with this possibility.”