Amazon has been accused of manipulating its advertising auctions to secretly overcharge more than one million brands and sellers by over US$20 billion (A$30.5 billion).

The US Federal Trade Commission (FTC) and a bipartisan group of 22 states alleged Amazon used undisclosed surcharges and proxy bids to inflate advertising prices.

Amazon sells Sponsored Products, Sponsored Brands and display advertising through auctions conducted when customers search for products on its online store.

The company told advertisers it used “second-price” auctions, where the winner generally pays slightly more than the second-highest bid rather than the full amount offered.

However, the complaint alleges Amazon began inserting a hidden “soft reserve price” into auctions from 2019, effectively raising the minimum amount advertisers paid after bids were submitted.

By 2024, Sponsored Products advertisers were allegedly charged close to their full winning bid in about 80% of auctions, compared with between 30% and 40% in 2021.

The FTC claims approximately 1.2 million advertisers were affected, including more than 500,000 small and medium-sized businesses. It also alleges the additional advertising costs were passed on to consumers through higher product prices.

Amazon strongly denied misleading advertisers and described the lawsuit as “misguided”.

The retailer said its auction model considers both bid price and how relevant an advertisement is to a shopper. It claimed around 92% of Sponsored Products ads selected in 2024 did not have the highest bid.

Amazon also estimated advertisers saved more than US$8 billion between 2021 and 2025 because its system prioritised relevance instead of awarding placements solely to the highest bidder.

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The case could have implications beyond the US as regulators examine transparency across rapidly expanding retail media platforms.

The lawsuit follows reports in June that the FTC had drafted a potential complaint while investigating whether Amazon properly disclosed its advertising terms, pricing and reserve-price thresholds.

Amazon is also fighting separate Federal Court proceedings launched by the ACCC in June over allegedly unfair terms in its Australian Prime contracts.

The watchdog claims Amazon relied on at least one of those terms when it introduced advertising to Prime Video in July 2024 and began charging subscribers an additional $2.99 per month to retain ad-free viewing.

The FTC and participating states are seeking civil penalties, advertiser refunds and an order preventing Amazon from continuing the alleged practices.