Amazon Drops 2.5% as FTC Sues Over $20B Ad Surcharge Scheme

Amazon shares fell 2.5% on August 31 after the US Federal Trade Commission and 22 state attorneys general filed a federal lawsuit alleging the company secretly inflated advertising prices through hidden surcharges. The complaint claims Amazon extracted over $20 billion from 1.2 million advertisers, including over 500,000 small businesses, by manipulating auction rules it publicly described as fair. The case, filed in federal court in Washington state, targets Amazon’s $70 billion advertising business and marks the third major FTC enforcement action against the e-commerce giant.

How Amazon allegedly rigged the auctions

Amazon told advertisers it used a second-price auction system, meaning winners pay only slightly more than the next-highest bid. The FTC alleges that beginning in late 2018 and expanding in mid-2019, Amazon secretly inserted an undisclosed “soft reserve price” above the true second-highest bid, forcing advertisers to pay more without their knowledge. Internal documents cited in the complaint show Amazon executives called this a “hidden surcharge” and used an “invented auction participant” to inflate prices. By 2024, advertisers for Sponsored Products were paying their full winning bid around 80% of the time, the FTC claims.

The scale of the alleged overcharges

The lawsuit alleges Amazon extracted over $20 billion in unlawful charges from advertisers over seven years. The scheme affected more than 1.2 million brands and sellers, with over 500,000 small and medium-sized businesses among those harmed. Amazon’s advertising business generated $68.6 billion in revenue in 2025 and $19.8 billion in Q2 2026 alone, making it the world’s third-largest digital ad platform behind Google and Meta. The FTC says higher ad costs were largely passed on to consumers through increased product prices.

Amazon’s defence and market reaction

Amazon rejected the allegations, calling the lawsuit “misguided” and arguing regulators misunderstand how its auctions work. The company claims it accurately explained its auction system and that improvements to its advertising technology saved advertisers $8 billion between 2021 and 2025. AMZN shares closed down 2.5% on August 31, falling to $254.92. The stock is now down 1.87% year-to-date and trades at a price-to-earnings ratio of 20.51, with 31 analysts rating it a buy and one rating it hold.

What happens next

The FTC and participating state attorneys general are seeking civil penalties, compensation, and other remedies. The case, filed as 2:26-cv-03097 in the US District Court for the Western District of Washington, will be decided in court. This is the third major lawsuit the FTC has brought against Amazon. In September 2025, Amazon agreed to pay $2.5 billion to settle allegations it used deceptive practices to enroll consumers in Prime and made cancellation difficult. A trial is scheduled to begin early next year in a separate case accusing Amazon of illegally maintaining a monopoly in online retail.

Final Thoughts

Amazon faces its third major FTC lawsuit, this time over alleged $20 billion in hidden advertising surcharges affecting 1.2 million advertisers. With Meyka grading the stock a B+ and 31 analysts maintaining buy ratings, the market reaction has been muted so far, though legal risk could weigh on the $70 billion advertising segment.

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The content shared by Meyka AI PTY LTD is solely for research and informational purposes.  Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.