The Federal Trade Commission (FTC), together with 22 states, filed a lawsuit against Amazon on Monday, accusing the e-commerce giant of artificially inflating the prices that businesses pay to advertise on its platform. The lawsuit, submitted in a federal court in Seattle, Amazon’s headquarters, alleges that the company manipulated its advertising auctions to increase costs for more than one million advertisers.

According to the 181-page complaint, Amazon employed a covert mechanism known as a “soft reserve price” in its auction process for ads, including “Sponsored Products,” “Sponsored Brands,” and “Sponsored Display” placements. The technique allegedly involved Amazon entering its own bids in auctions to raise the minimum price other advertisers would have to pay, often without their knowledge. The FTC contends this practice inflated advertising costs by as much as 50% during major shopping days and was implemented 70% to 80% of the time in recent years.

California Attorney General Rob Bonta highlighted that Amazon concealed these practices from advertisers, quoting internal company communications suggesting employees recognized the damage such tactics would cause to advertiser trust. The complaint states that Amazon’s approach led to tens of billions of dollars in overcharges since 2018, benefiting the company at the expense of businesses reliant on its platform for customer reach.

Amazon denied the allegations, emphasizing in a statement that the lawsuit mischaracterizes how its advertising auctions function. The company said its “soft reserve prices” adjust dynamically based on the value of ad space and that it never charges advertisers above their actual bids. Amazon framed its auction system as intended to prioritize ad relevance and customer experience rather than merely maximizing prices, arguing that the costs of digital advertising have remained stable when adjusted for inflation. The company also said it properly disclosed its auction process and that the complaint relies on oversimplified interpretations of complex internal communications.

This lawsuit follows previous actions taken by the FTC against Amazon. In 2023, the agency and several states filed a broad antitrust case accusing Amazon of exploiting its dominance in online shopping, with that trial scheduled for next year. Additionally, Amazon settled a separate $2.5 billion dispute last year involving accusations of misleading customers about Prime subscription cancellations, although it did not admit wrongdoing.

Representing a bipartisan group of states including California, Florida, New York, Louisiana, and Iowa, the lawsuit seeks injunctions to halt the alleged behavior as well as unspecified monetary penalties. The case also reflects growing regulatory scrutiny of digital advertising practices, with other major technology companies facing similar antitrust challenges in recent years. Investors responded to the news with a decline in Amazon’s stock price.