Amazon is under the microscope of the federal government—again—over allegations that it has been undercutting the companies that sell on its marketplace.

Monday saw the filing of a lawsuit from the Federal Trade Commission and 22 states alleging that the e-commerce titan subversively upped prices on ads for over 1 million enterprises selling wares on Amazon.com.

Filed in a Seattle federal court, the lawsuit said that Amazon inflated the price of promotions for marketplace sellers and brands. The FTC claimed that over the course of seven years, Amazon has “covertly and substantially increased the prices” that sellers were required to pay to advertise on its platform, likely extracting excess ad revenue totaling in the tens of billions of dollars.

“When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering,” said FTC Chairman Andrew N. Ferguson. “Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers. The FTC under President Trump won’t allow this deception to continue.”

The attorneys general of Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington joined the FTC in the suit, writing that the undisclosed surcharges have impacted more than 50,000 small- and medium-sized businesses which took part in auctions for ad placements on the company’s e-commerce site as well as its mobile app.

The auctions allow companies to bid on Sponsored Product ads, Sponsored Brands ads and Display Ads which show up alongside regular search results when a consumer inputs a keyword in the search bar on Amazon.com. The placements are auctioned to the highest bidder for each keyword.

The complaint said that Amazon misrepresented its auction practices, telling prospective advertisers that it runs “second price” auctions wherein the winner of each auction only pays “one cent more than the next highest bidder” for each successful bid for an advertising keyword. However, the FTC alleged, in practice, Amazon has charged Sponsored Products advertisers their own winning bid nearly 80 percent of the time, and converted its nominal “second price” auction into a first price auction.

This matters to advertisers, the complaint said, because it can impact how they choose to bid. Amazon’s practices have likely led ad buyers to bid higher than they would normally. And, the complaint said, auction pricing has also carried “a surcharge hidden in it” since 2019, the FTC wrote, quoting an internal Amazon document. The company changed its auction rules around that time without notifying advertisers, and the surcharge, referred to internally as a “soft reserve price” has resulted in advertisers shelling out far more than the price determined at auction.

A separate internal Amazon document quoted by the FTC and the states alluded to the existence of an “invented auction participant” designed to drive up the price of ads at auction. The lawsuit quoted correspondence from an Amazon employee that said the surcharges enable the company to fetch ad prices “beyond what [can] be achieved through advertiser competition.”

Naturally, ads that run on shopping holidays like Prime Day and Black Friday have seen the biggest inflationary boost. The lawsuit pointed to correspondence obtained by the FTC from 2024 wherein two senior executives—Amazon’s head of Amazon Ads and its chief digital economist—discussed the fact that the company’s “clever non-transparent way to charge first price” has been an “incredibly effective way to drive revenue.”

The complaint also claimed that Amazon’s senior executives actively sought to conceal their surcharge pricing system and lied to advertisers that asked directly if the company had altered its auction format. Internal documents revealed that Amazon was aware of the impact this could have, with correspondence between employees stating that revealing the surcharges would lead to “irrevocable damage to advertiser trust” as well as a “downward spiral” of lowered bids that could severely impact revenue for the company.