The Federal Trade Commission sued Amazon on Monday, alleging the e-commerce giant deceived advertisers by secretly raising the minimum price they had to pay to place ads promoting their products. In a complaint, the agency said advertisers lost over $20 billion as a result of the practice, which began in 2018, and consumers paid higher prices as a result. Amazon said the lawsuit is “misguided” and that the FTC’s claim “fundamentally misunderstands how advertisers operate.” Amazon said it looks forward to making its case in court.

The allegations center on an auction system Amazon uses to determine prices for ads known as Sponsored Products, Sponsored Brands and Sponsored Display. These are the ads consumers see when they are searching for products on Amazon.com and its mobile app. The method of auction is meant to give bidders confidence by ensuring the winning bidder pays only nominally more than the second-place bidder.

For example, if the highest bid for a piece of ad inventory is $15 and the second-highest bid is $12, the winning bidder would be charged $12.01. In 2018, Amazon began changing some ad auctions in a way it believed some advertisers wouldn’t notice, the FTC’s complaint said. In the changed auctions, Amazon introduced what it referred to internally as a “soft reserve” pricing system, according to the complaint.

Instead of having the winner pay just above the second-highest bidder, Amazon started charging advertisers higher prices set after an auction was completed. According to the complaint, some Amazon employees referred to the soft-reserve prices as “post-hoc pricing adjustments,” and acknowledged that “[a]dvertisers may not be expecting” them. Amazon said the changes were designed to maintain the value of premium ad inventory after changes that made ads more relevant caused prices to drop.

The company said roughly 92% of placed ads aren’t given to the highest bid and that the practice doesn’t harm advertisers. Amazon operates the third-largest digital-ad platform in the world behind Alphabet’s Google and Meta Platforms. The company didn’t apply the new bidding structure to all advertising auctions, the FTC’s complaint said.

In recent years, Amazon has intervened in auctions in this way 70% to 80% of the time, implementing a higher surcharge on auctions during the Christmas holiday season and other peak shopping events, the complaint said. FTC Chairman Andrew Ferguson said on X that the higher ad prices generated by the soft-reserve prices drove retail price increases that “hit essential goods, like food and grocery items ordinary Americans rely on.” Amazon said its ad practices had no harm on consumers. “It’s about raising rivals’ costs and adding Amazon’s bottom line,” said Shaoul Sussman, former associate director for litigation in the Bureau of Competition at the FTC.