FTC Sues Amazon Over Secret Ad Surcharges, Iowa Joins 22-State Lawsuit
The Federal Trade Commission and 22 states, including Iowa, filed a lawsuit against Amazon on Tuesday, alleging the e-commerce giant secretly rigged billions of ad auctions and extracted more than $20 billion from advertisers since 2019.
The lawsuit, filed in US District Court for the Western District of Washington, claims Amazon manipulated its advertising auction system to overcharge approximately 1.2 million advertisers. Iowa Attorney General Brenna Bird joined the bipartisan coalition of state attorneys general taking action against the company.
What does the FTC allege Amazon did?
According to the lawsuit, Amazon has conducted what the FTC calls "billions of rigged auctions" since 2019, imposing hidden surcharges on advertisers nearly every time a shopper clicks on an ad. The company allegedly overrode actual auction results with higher prices to boost its own profits.
"Amazon represents, and advertisers believe, that competitive auctions set the prices for advertising on its leading e-commerce website," the lawsuit states. "But, in reality, Amazon overrides and replaces the actual auction results with higher prices set by Amazon to increase its profits."
The FTC said internal documents obtained during an investigation that began in 2024 reveal how Amazon inflated prices for Sponsored Products, Sponsored Brands, and Sponsored Display advertisements that appear alongside consumer search results.
How did the alleged scheme work?
The FTC says Amazon told advertisers it ran "second price" auctions, an industry standard where the winning bidder pays just one cent more than the next highest bid. But starting in 2019, Amazon allegedly added an undisclosed "soft reserve price" that forced advertisers to pay more than the auction determined.
An Amazon senior scientist explained the company raised prices by using "an invented auction participant representing how much Amazon thinks that particular ad slot is worth," according to the lawsuit. A senior vice president reportedly acknowledged internally that "the second price isn't set by an actual bidder, but rather by Amazon itself with a proxy 2nd price that we calculate."
One Amazon employee wrote in a 2024 message: "We don't tell them about the surcharge, we let them assume [it is] GSP-based." The employee had reportedly helped conduct a pricing experiment concluding Amazon could increase surcharges without detection by advertisers.
How does Amazon respond?
Amazon called the lawsuit "misguided" and accused the FTC of cherry-picking details. The company did not dispute key claims about how its auction system works but argued it did not harm consumers or advertisers.
"After reviewing approximately 1.5 million pages spanning six years, the FTC leans on a handful of simplified communications to allege a companywide effort to deceive. That is patently false," Amazon said.
Amazon acknowledged using reserve prices, saying the system was implemented because "relevant ads [were] increasingly winning at prices below market value." The company argued that advertisers never pay more than their maximum bid and that average cost-per-click remained flat from 2019 through 2024 when adjusted for inflation.
Amazon also noted that 92 percent of Sponsored Products ads are not given to the highest bidder because the company considers ad relevancy alongside price, claiming advertisers saved over $8 billion between 2021 and 2025 as a result.
What does this mean for Iowa consumers and businesses?
For Iowa's growing number of Amazon sellers and small businesses that advertise on the platform, this lawsuit could signal changes in how advertising costs are calculated. The FTC argues the inflated advertising charges lead to higher prices for consumers.
"These inflated advertising charges allow Amazon to extract additional revenue from sellers on its platform, on top of the account fees, referral fees, and fulfillment and storage fees that increasingly both cut into Amazon sellers' profit margins and lead to price increases borne by Amazon shoppers," the lawsuit said.
The FTC and states are seeking a permanent injunction to change Amazon's practices, along with civil penalties, restitution, and other monetary relief. Amazon reported $200.6 billion in net sales in Q2 2026.
Is Amazon still hiding the surcharges?
The FTC says Amazon did not mention reserve pricing on its website until October 30, 2025, nearly a year after learning of the investigation. While Amazon has since updated its Ads auctions webpage to note that reserve pricing may affect ad costs, the FTC contends the company still "fails to clearly and conspicuously disclose the nature, scope, and extent of Amazon's secret reserve pricing systems."
What happens next?
The case will proceed in federal court in Washington state. Iowa's participation in the lawsuit reflects growing bipartisan concern over Amazon's market power and its treatment of the small businesses that rely on its platform to reach customers.
For Iowa entrepreneurs selling on Amazon, the outcome could affect advertising costs and profit margins. The FTC's action represents one of the largest antitrust enforcement efforts against the company in recent years.