TradingKey - On August 31 ET, Amazon (AMZN) fell sharply by over 3%, breaking below the $260 mark.

According to The Wall Street Journal, the Federal Trade Commission (FTC) will file a lawsuit against Amazon over advertising pricing issues, alleging that it manipulated merchant ad bids and secretly inflated advertising costs over the past seven years.

Amazon stock chart, Source: TradingView

The lawsuit is currently planned to be filed in Seattle federal court. According to people familiar with the matter, more than 20 Democratic and Republican state attorneys general will jointly join the case, with confirmed states including New York, California, and Florida.

Core Allegation: Amazon 'Bid Against Itself' to Inflate Ad Costs

The FTC alleges that Amazon has altered its ad auction strategy since 2018 by quietly entering its own bids—known as a "soft reserve"—that were higher than the second-highest bidder, thereby driving up final ad prices. Reports indicate that Amazon was aware of merchants' competing bids but failed to disclose this new practice.

To conceal the strategy, Amazon advertising executives specifically tracked the "surcharges" earned from it and took steps to limit outside awareness; it was initially deployed only on peak shopping days, leading merchants to mistakenly believe the higher prices stemmed from intense traffic competition during the holiday season. In recent years, Amazon intervened to raise minimum bids in 70% to 80% of ad auctions. The FTC stated that pay-per-click (PPC) advertising costs during major promotions increased by up to 50% as a result.

Notably, Amazon stated to advertisers on a public webpage (updated in April this year) that it uses "reserve pricing," which "may affect advertising costs."

Amazon is reportedly the world's third-largest digital advertising platform, behind only Google and Meta. Securities filings show that its ad revenue reached $68 billion in 2025. Advertising is one of Amazon's fastest-growing and highest-margin businesses, and the allegations directly target its core monetization model.

This is also the third major case brought by the FTC against Amazon. Last year, Amazon agreed to pay $2.5 billion to settle a lawsuit accusing it of duping users into subscribing to Prime and making cancellation difficult; another lawsuit alleging illegal monopoly is scheduled to go to trial next year.

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