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Will the FTC win its antitrust lawsuit against Facebook?

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The Facebook logo reflected in a puddle at the company’s headquarters in Menlo Park, California.

David Paul Morris/Bloomberg

About the Author: Thomas W. Hazlett is HH Macaulay Endowed Professor of Economics at Clemson University and Visiting Scholar at Stanford University’s Hoover Institution.

Republicans and Democrats are desperate to deal blows to social media. Whatever the outcome of Elon Musk’s meteoric strike on Twitter, antitrust law is the political hammer of choice. The Federal Trade Commission filed FTC versus Facebook, seeking to break up the company now known as Meta, in 2020 when President Trump-appointed commissioners were in the majority. President Biden’s FTC enthusiastically sued him.

Although he is unlikely to stand trial before mid-2024, the government’s prospects for success are slim.

In the FTC’s account,


Facebook

has been a fantastic personal networking app since its launch in 2004, far superior to Friendster and MySpace. With superior usability, it gathered a huge audience.

Then, in 2012, Facebook bought Instagram for $1 billion. The new service featured nifty software that made it fun and easy for mobile users to post photos. This blended well with Facebook’s platform, strong on the desktop but needing help transitioning to smartphones.

Facebook next acquired WhatsApp, for the same reason, dropped $19 billion in 2014. The messaging service was already popular, and the risky outlay quickly paid off. Facebook’s platform has grown; online engagement (and ad sales) skyrocketed; the market capitalization of companies reached more than $500 billion in 2017, behind only Apple, Alphabet, Microsoft and Amazon among listed companies.

The FTC (as well as European Union and UK regulators) has endorsed both Facebook-Insta and Facebook-WhatsApp. But US regulators have flipped. The FTC is now arguing for a US court to overturn its own rulings. Facebook has improved its offerings and improved the customer experience. But this seemingly good upgrade was bad, because “at least since 2011, Facebook has had monopoly power.” Shit, if the FTC didn’t miss this in 2012 and 2014, but on second thought, they see it now.

The agency leads its redesign with Facebook CEO Mark Zuckerberg from June 2008 E-mail to business leaders: “Better to buy than to compete.

The FTC offers this as evidence that Facebook refused to compete on substance and instead cornered the market. They didn’t note the timestamp. In June 2008, MySpace was the social media giant. If a company could just buy its way to monopoly, Facebook would have sold.

More deeply, absorbing every start-up by throwing capital gains on 20-somethings in Silicon Valley would flood the area, draining all the greed Facebook could muster. In fact, the mergers that made sense for Facebook were ones like Insta and WhatsApp, deals that supercharged the company with more attractive products.

Building better mousetraps is a creation of efficiency, not a restriction of monopolistic production.

Alas, the FTC relies on its own theory. His complaint cites Facebook’s explicit rejection of takeovers of Twitter or Snapchat. Why? The prices were too high.

The FTC tackles a high-tech antitrust conundrum: If Facebook users get free access to valuable services, how can the platform exploit the monopoly?

The FTC theory states that if the first Facebook was careful with users’ personal data, it achieved monopoly status, then reduced user privacy, becoming bolder in selling individuals’ online behavioral histories to advertisers. This resulted in higher targeting for ads, more clicks, and higher revenue for Facebook. Monopoly prices, even at $0.00 for user access, achieved as quality of service was reduced.

This argument is half way too clever. The data sold by Facebook remunerates the platform and generally assists social networks users. This helps to target sales pitches more effectively. When data sales improve the likelihood of a click, this is positive feedback indicating that the customer likes the ad more, not less. The FTC attempts to fill this gap in its argument by suggesting that privacy rules have been murky, but the disclosures are regulated by the commission (and do not depend on antitrust claims). Moreover, the argument avoids the proof entirely, because MIT Avinash Collis and Erik Brynjolfsson (and others) have found that “free” Facebook services are worth more than $500 per year for every user in the US and Europe.

Companies offer different levels of data privacy. Apple states that “privacy is a basic human right…and one of our core values.” With its devices and its application software, sold at a high price, Apple considerably restricts advertisers’ access. Interestingly, the recent Facebook stock price crash is probably largely due to Apple’s App Store data restrictions and the emerging rivalry of TikTok. Competitive attacks come from many directions.

The case against Facebook would be falling apart if it had been stitched up to begin with. A danger now is that other antitrust actions, like the private case filed against Apple challenging its allegedly anti-competitive control of the App Store, will stifle market trends that provide benefits to customers. (Apple won most of this case at trial; an appeal is pending). Zuckerberg has no chance of acquiring Apple. But it would be his luck that antitrust law disrupts Apple’s privacy protections for him.

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