Amazon’s advertising business is facing escalating regulatory scrutiny as California joins the Federal Trade Commission (FTC) and 22 state attorneys general in a lawsuit alleging the company secretly inflated prices through its digital advertising auctions. Regulators claim Amazon collected more than $20 billion in undisclosed surcharges from advertising customers while limiting their ability to see how auction prices were calculated.

California Joins 22-State Lawsuit Accusing Amazon of Rigging Ad Auctions

Amazon’s retail media business is coming under increasingly intense scrutiny over a question at the heart of digital advertising: whether advertisers are actually paying the price generated by a competitive auction.

California Attorney General Rob Bonta has joined the Federal Trade Commission and a bipartisan coalition of 22 state attorneys general in suing Amazon over alleged deceptive practices involving advertising auctions on its website and mobile application.

The lawsuit, filed in the U.S. District Court for the Western District of Washington, alleges that Amazon unlawfully overcharged businesses advertising products on its platform and collected more than $20 billion in undisclosed surcharges.

The allegations have not been proven in court.

The case is significant for the wider retail media and advertising technology industry because it challenges how a major commerce platform represents its auction mechanics to advertisers.

Amazon’s $68 billion advertising business

Amazon is no longer simply an e-commerce company that sells advertising on the side.

The company generates more than $68 billion in annual advertising revenue, according to California’s attorney general, with a substantial portion coming from advertising placements on its e-commerce website and app.

More than one million advertisers use Amazon’s advertising platform, making its auction infrastructure one of the most consequential marketplaces in retail media.

Advertisers can compete for product-related placements by submitting bids, with Amazon’s system considering both the bid and the relevance of an advertisement to a shopper’s search.

The lawsuit centers on what happens after that competition takes place.

The second-price auction dispute

Amazon has represented its advertising auctions as second-price auctions.

In a conventional second-price structure, the winning advertiser does not necessarily pay its maximum bid. Instead, the price is determined by the next-highest eligible bid, with the winner paying the minimum amount required to beat that competitor.

Amazon has reportedly described the mechanism to advertisers as paying roughly one cent more than the next-highest bid.

That distinction matters because advertisers build bidding strategies around auction rules.

In a first-price auction, a winning advertiser pays its own bid, creating an incentive to estimate the minimum amount required to secure a placement.

A second-price auction can encourage higher bids because the advertiser expects the final price to be determined by competition rather than its maximum willingness to pay.

California and the FTC allege Amazon told advertisers they were participating in the latter model while secretly modifying the price.

Regulators allege Amazon added undisclosed surcharges

According to the complaint, Amazon began adding surcharges in 2019 on top of the amount generated by the second-place bid.

The alleged change increased the final price paid by the winning advertiser without being disclosed to customers.

The coalition argues that the practice allowed Amazon to extract additional revenue while advertisers continued operating under the assumption that the platform’s auction rules had remained unchanged.

The alleged lack of transparency is a critical part of the case.

Amazon controls much of the underlying auction data, according to the lawsuit, meaning advertisers could not independently determine whether the amount they paid reflected genuine competition or an additional charge imposed by the platform.

For a marketplace built around automated bidding, that information asymmetry can be consequential.

Why auction transparency matters

Advertising platforms routinely use complex algorithms to determine which ads appear, where they appear and how much advertisers pay.

Search advertising, programmatic media and retail media all rely on auction-based mechanisms, although the exact rules differ between platforms.

Advertisers therefore need to understand the pricing model before deciding how aggressively to bid.

If a platform describes an auction as second-price but allegedly introduces additional pricing mechanisms that increase the final cost, advertisers could make systematically different bidding decisions than they would with accurate information.

The California lawsuit argues that is precisely what happened on Amazon.

The coalition also alleges that Amazon repeatedly made misleading statements about how its auction prices were determined while limiting access to information that could have exposed the surcharges.

Small businesses are particularly exposed

The dispute is not limited to major consumer brands.

Amazon’s advertising ecosystem includes a large population of small and medium-sized sellers that use sponsored placements to compete for visibility against larger companies.

For these businesses, advertising costs can have a direct impact on marketplace profitability.

A seller competing for a popular product keyword may already face high bids during periods of intense demand. Additional auction costs can reduce return on ad spend and make it more difficult to acquire customers profitably.

The regulators also argue that increased advertising expenses can ultimately affect consumers.

If sellers incorporate marketing costs into their pricing decisions, higher advertising expenses could contribute to higher prices for products sold through the marketplace.

Retail media faces a transparency test

The allegations arrive as retail media networks become one of the fastest-changing areas of digital advertising.

Retailers including Amazon have an advantage over many traditional advertising platforms because they can connect advertising exposure with shopping activity and transactions.

That first-party data makes retail media attractive to brands. Advertisers can target consumers based on shopping behavior and evaluate campaigns against downstream commercial outcomes.

But the same closed ecosystem can make independent verification difficult.

A retail media platform may control the audience data, inventory, auction, measurement and transaction environment. That concentration makes transparency around pricing especially important.

The Amazon case could therefore become relevant to the broader retail media industry, even if the allegations ultimately remain specific to Amazon.

What advertisers should watch

For enterprise advertising teams, the lawsuit highlights the importance of looking beyond headline metrics such as impressions, clicks and return on ad spend.

Brands and agencies may increasingly demand greater visibility into auction mechanics, bid strategies, clearing prices, platform fees and algorithmic changes.

Independent measurement could also become more important where platforms provide limited access to underlying auction data.

The legal challenge may ultimately push retail media operators toward clearer disclosures about how auctions work and how final prices are calculated.

California expands the regulatory pressure

California’s participation adds another major state regulator to an already broad coalition.

The states and FTC are seeking remedies that include an injunction, civil penalties, disgorgement of alleged ill-gotten profits and restitution.

The complaint also alleges that Amazon’s practices continue today.

Whatever the eventual legal outcome, the case places an important part of the modern advertising stack under the microscope. As more brands move budgets into retail media, trust in the auction itself becomes as important as the audience data and sales attribution surrounding it.

Market Landscape

Retail media is evolving from an emerging advertising channel into a core component of many enterprise media strategies. Amazon’s scale gives it an outsized role in that transition.

The regulatory case highlights a fundamental tension in closed advertising ecosystems: platforms can provide advertisers with valuable first-party data and purchase-intent signals while retaining substantial control over the infrastructure that determines ad prices.

That creates a growing need for auction transparency and independent measurement.

The issue extends beyond Amazon. As retailers, marketplaces and commerce platforms build advertising businesses, advertisers will increasingly evaluate not only audience quality and campaign performance but also the mechanisms used to determine media costs.

If regulators prevail, retail media operators could face stronger expectations around pricing disclosures, auction integrity and advertiser access to data.

Top Insights

• California has joined the FTC and 22 states in challenging Amazon’s alleged advertising auction practices, increasing regulatory pressure on the retail media giant.
• The coalition alleges more than $20 billion in undisclosed surcharges, affecting more than one million advertisers competing for Amazon ad placements.
• Amazon allegedly added surcharges to second-price auction outcomes, potentially causing advertisers to pay substantially more than the advertised auction mechanism implied.
• Limited auction data allegedly prevented advertisers from verifying prices, highlighting transparency concerns for closed retail media and advertising ecosystems.
• The case could influence retail media standards, particularly around auction disclosure, algorithmic pricing, advertiser measurement and platform accountability.

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