Key takeaways
- The FTC and more than 20 state attorneys general reportedly plan to sue Amazon over its advertising-auction practices.
- Regulators are expected to allege that undisclosed price floors increased advertisers’ costs and generated tens of billions of dollars for Amazon.
- Amazon shares fell around 3 per cent as investors assessed the potential penalties and risks to its fast-growing advertising business.
Amazon.com Inc. (NASDAQ:AMZN) shares fell Monday following reports that U.S. regulators are preparing to sue the company for allegedly deceiving advertisers and manipulating the prices they paid to promote products.
The Federal Trade Commission and a bipartisan group of more than 20 state attorneys general plan to file the lawsuit in federal court in Seattle, according to The Wall Street Journal.
Amazon stock was trading approximately 3 per cent lower near $258 Monday afternoon, having reached an intraday low of around $257. The wider U.S. market was also lower.
Regulators target Amazon’s ad auctions
The expected complaint concerns the auctions Amazon uses to determine which sponsored products appear when shoppers search its marketplace.
Regulators have been investigating whether Amazon adequately disclosed its use of reserve pricing, which establishes the minimum amount an advertiser must pay to secure an ad placement.
The lawsuit will reportedly allege that Amazon began using a strategy known internally as a “soft reserve” in 2018. Under this system, Amazon allegedly inserted its own bid into auctions, effectively raising the price paid by the winning advertiser without disclosing how that price had been determined.
The practice allegedly increased pay-per-click prices by as much as 50 per cent during major shopping events. Regulators are expected to claim that Amazon tracked the additional revenue as a surcharge and generated tens of billions of dollars from the strategy over seven years.
These remain allegations, and no court has determined that Amazon acted unlawfully. Neither Amazon nor the FTC had publicly commented on the reported lawsuit at the time of publication.
Why advertising matters to Amazon
Advertising has become one of Amazon’s fastest-growing businesses and an increasingly important source of revenue beyond online retail and Amazon Web Services.
The company generated approximately $68 billion from advertising during 2025. Second-quarter 2026 advertising revenue increased 26 per cent year over year to $19.8 billion, exceeding Wall Street expectations, according to Amazon’s financial results.
The appeal of Amazon’s advertising platform is its proximity to purchasing decisions. Brands can place sponsored products directly beside search results and measure whether those advertisements convert into sales.
A requirement to change auction pricing or provide greater disclosure could affect how much revenue Amazon generates from each advertising placement. The company could also face civil penalties and financial restitution for affected advertisers, although the size of any potential judgment remains unknown.
Another regulatory battle for Amazon
The reported action would become the third major FTC case involving Amazon.
The company agreed to a $2.5 billion settlement during 2025 over allegations that it enrolled customers in Prime without adequate consent and made subscriptions unnecessarily difficult to cancel. That agreement included a $1 billion civil penalty and $1.5 billion for customer refunds.
Amazon is also defending a separate antitrust lawsuit alleging that it uses monopolistic practices to prevent competitors and marketplace sellers from lowering prices. A trial in that case is expected in 2027.
The latest dispute is narrower because it focuses specifically on advertising disclosures and pricing. However, it targets a business that has been growing considerably faster than Amazon’s traditional online stores.
Investors should watch the remedies sought by regulators, whether Amazon changes its auction system and whether advertisers reduce spending in response to the allegations.
The immediate financial impact may remain manageable for a company that generated more than $200 billion in second-quarter sales. The greater concern is whether greater transparency or restrictions on reserve pricing weaken the growth and profitability of one of Amazon’s most valuable emerging businesses.