Monopolies in a Modern World: Implications of the Antitrust Lawsuit against Facebook

Photo credit to Fortune.

On December 9th the Federal Trade Commission (FTC), in collaboration with 46 US states, hit tech giant Facebook with an antitrust lawsuit, alleging that Facebook illegally engaged in anti-competitive practices over a period of years. 

The lawsuit centres around Facebook’s acquisitions of Instagram and WhatsApp in 2012 and 2014 respectively. The suit seeks to require that these companies be divested from Facebook and to mandate that Facebook seek approval prior to future acquisitions. Jennifer Newstead, Facebook’s legal counsel, called the lawsuit “revisionist history” and claimed the FTC was using US competition law to penalize “successful companies.” This comment and Facebook’s larger argument partially rests on the fact that the company received regulatory approval prior to acquiring Instagram and WhatsApp. 

Unfortunately for Facebook, recently released emails from CEO Mark Zuckerburg clearly lay out his intentions for buying the two companies. In a 2008 email, Zuckerburg claimed “it is better to buy than compete” and later listed “neutralizing a potential competitor” as a primary motivation for acquiring Instagram. Zuckerburg and Facebook have also suffered terrible press in recent years around election meddling and privacy controversies that could hinder their case.  

Despite this evidence, the lawsuit may prove challenging for the FTC to win in court. Much of their argument depends on the malicious intent that the emails unveil. This may not be enough to catch Facebook since antitrust law typically focuses on the economic consequences of business practices. It will be hard to measurably prove that consumers would be better off had Facebook not acquired Instagram and WhatsApp since the question is purely hypothetical. Additionally, given the complex and intertwining nature of the software and data industry, it would be highly arduous to break Facebook apart. This is not an issue that hindered previous monopoly break-ups such as AT&T in 1984 and Standard Oil in 1911. 

The existence of the suit itself brings about intriguing and important questions about monopolies in a digital and data-driven age. Antitrust divestitures in past decades against resource and service companies like AT&T and Standard Oil were simple to administer since they dealt with tangible products. However, social media platforms are free to join and rather sell their users’ data to advertisers.  

On the FTC’s side, the answer is simple; by engaging in predatory acquisitions of its social media competitors rather than developing similar technologies itself, Facebook is stifling innovation in the tech market. Therefore, users are being offered a subpar experience and advertisers are being denied the pricing benefits of having multiple platforms from which to source data.. The FTC sees divestiture as the primary regulatory mechanism to solve the issue, even if it is a challenging task.

Giving large companies, specifically Facebook, a monopoly over the platform for this could be dangerous and detrimental to democracy and social cohesion

On the Facebook side, a rational economic case can be made for why the FTC lawsuit sends the wrong message to tech businesses. Counterintuitively, it is possible that if Facebook was broken up, innovation in the software industry may be hindered. Economists such as Clayton Christensen have identified a concept called disruptive innovation, whereby large, well-situated companies such as Facebook have difficulty innovating due to their set-in-stone business practices and aversion to risk. Thus, it is the role of smaller, usually-new companies  to create technologies that disrupt the old ones. These are then often acquired or adapted by the larger companies. In the tech sector, many such start-ups innovate intending to profit from acquisitions by large corporations that are interested in their ideas. By breaking up Facebook, the incentive for small tech companies to innovate could be dampened.   

Another reason to break up Facebook is Facebook’s monopolization of how society interacts and communicates. In 2021, especially during a global pandemic, much of social interaction happens virtually. Giving large companies, specifically Facebook, a monopoly over the platform for this could be dangerous and detrimental to democracy and social cohesion. The Facebook and Cambridge Analytica 2016 Election Scandal is a perfect example of this. More broadly, the effects that social media has on increased political polarization are a worrying trend to many. This is compounded by the ethical questions raised by Facebook’s sharing of its users’ data. 

The recent FTC lawsuit against Facebook has the potential to be a watershed moment in the tech industry. Regardless of the result, it could demonstrate an increased willingness by the government to curb big tech’s financial and social hegemony. Given the integral role of big tech in the modern world, this could not only change the way that tech companies innovate and conduct their business but also change the role that social media plays in public life. The lawsuit is poised to be much more influential than antitrust cases of the past— thus, businesses, social media users and governments would be wise to keep an eye on how the story plays out.

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