Amazon Shares Fall as FTC Prepares Ad Pricing Lawsuit

The Federal Trade Commission (FTC) is set to take legal action against Amazon on Monday, the Wall Street Journal reported. According to officials, the e-commerce company quietly increased the minimum bid price that sellers had to pay for advertisements on its platform. Over seven years, this practice generated tens of billions of dollars for Amazon.

Over 20 state attorneys general are also participating in the lawsuit. Investors did not wait for the filing to react. Amazon's stock dropped more than 3% on Monday afternoon, wiping out approximately $86 billion in market capitalization.

How the Alleged Ad Price Manipulation Was Carried Out

Each time a shopper searches, sellers compete against each other in a bidding process. Amazon previously operated an auction system designed to prevent the winner from overpaying. This structure maintained low bids.

According to officials, starting in 2018, Amazon started inserting its own bid into the auction. That bid was placed just above the second-highest bidder, resulting in the winner paying a higher price. The practice was referred to internally as a soft reserve.

Amazon had visibility into all competing bids. The company did not disclose the change to sellers. Executives monitored the additional revenue and kept the information closely guarded.

The manipulation initially occurred on high-traffic shopping days, when sellers were likely to attribute price increases to intense competition. Currently, Amazon applies the minimum price increase in 70% to 80% of auctions. The FTC claims that on peak days, click prices rose by 50%.

Amazon's seller guidelines, which were updated in April, do reference reserve pricing.

“Some reserves help allocate ad space by setting a bid threshold,” according to Amazon's advertising guidance, as reported by the Wall Street Journal.

Potential Reaction of Amazon Stock to the Lawsuit Filing

Amazon (AMZN) was trading at $257.87 early Monday afternoon, a decline from its previous close of $266.43. The stock had remained near record highs through August.

The sell-off on Monday already surpasses previous penalties. Amazon paid a $1 billion civil penalty in September last year related to Prime sign-ups. The market wiped out roughly 86 times that amount in one afternoon.

Therefore, the penalty itself is not the main concern. Advertising generated $69.6 billion in 2025, nearly a tenth of Amazon's total sales of $716.9 billion. Those revenues have high margins and help finance substantial AI capital expenditures.

If a judge were to alter the auction rules, it would directly impact that revenue source. Investors should focus on the remedy section of the complaint rather than the fine amount.

The Google case demonstrates how protracted such proceedings can be. A judge ruled against Google's advertising business in 2025, but the remedy has yet to be determined.