About the author: Thomas W. Hazlett is H.H. Macaulay Endowed Professor of Economics at Clemson University, and a visiting scholar at the Hoover Institution at Stanford University.
Both Republicans and Democrats are desperate to deal social media a beating. No matter how Elon Musk’s dazzling strike on Twitter turns out, antitrust law is the policy hammer of choice. The Federal Trade Commission filed FTC v. Facebook, seeking to break up the company now known as Meta, in 2020 when commissioners appointed by President Trump were in the majority. President Biden’s FTC has enthusiastically continued it.
While not likely to be tried until mid-2024, the government’s prospects for success are slim.
In the FTC’s telling, Facebook was a fantastic personal network app from its launch in 2004, nicely out-performing Friendster and MySpace. With superior user-friendliness, it amassed a huge following.
Then, in 2012, Facebook bought Instagram for $1 billion. The new service had nifty software making it fun and easy for mobile users to post pictures. This blended well with Facebook’s platform, strong on the desktop but needing help in the transition to smartphones.
Facebook next acquired WhatsApp, for much the same reason, dropping $19 billion in 2014. The messaging service was already popular, and the risky outlay soon proved worthwhile. Facebook’s platform gained scale; online engagement (and ad sales) soared; company market capitalization grew to over $500 billion by 2017—behind only Apple, Alphabet, Microsoft, and Amazon among publicly listed firms.
The FTC (along with regulators in the European Union and the U.K.) approved both Facebook-Insta and Facebook-WhatsApp. But U.S. regulators have flipped. The FTC now pleads for a U.S. court to overrule its own decisions. Facebook enhanced its offerings and made the customer experience superior. But that upgrade, seemingly good, was bad, because, “At least since 2011, Facebook has had monopoly power.” Damn, if the FTC didn’t miss that in 2012, and 2014, but on third thought sees it now.
The agency leads its re-do with Facebook CEO Mark Zuckerberg’s June 2008 email to firm executives: “It is better to buy than compete.”
The FTC offers this as evidence that Facebook refused to compete on the merits and instead cornered the market. They failed to note the time-stamp. In June 2008 MySpace was the social media behemoth. If a firm could simply buy its way to monopoly, Facebook would have been selling.
More deeply, soaking up every start-up by throwing capital gains at Silicon Valley twenty-somethings would flood the zone, draining all the avarice Facebook could muster. In fact, the mergers that made sense for Facebook were those like Insta and WhatsApp—deals that super-charged the firm with more attractive products.
Building better mousetraps is efficiency creation, not monopolistic output restriction.
Alas, the FTC turns on its own theory. Its complaint cites Facebook’s explicit rejection of takeovers of either Twitter or Snapchat. Why? The prices were too high.
The FTC addresses a high-tech antitrust conundrum: If Facebook users get access to valuable services for free, how can the platform be exploiting monopoly?
The FTC’s theory states that, while the early Facebook was careful with users’ personal data, it achieved monopoly status and then reduced users’ privacy, becoming bolder in selling individuals’ online behavior history to advertisers. This allowed superior targeting for ads, more clicks, and higher revenues for Facebook. Monopoly prices, even at $0.00 for user access, obtained as quality of service was reduced.
That argument is too clever by half. The data sold by Facebook pays for the platform and generally assists social media users. It makes the sales pitches more efficiently targeted. When data sales improve the likelihood of a click, that is positive feedback that the customer likes the ad more, not less. The FTC attempts to patch this gap in its argument by suggesting that privacy rules have been murky, but disclosures are regulated by the commission (and do not depend on antitrust claims). Moreover, the argument entirely avoids the evidence, as MIT’s Avinash Collis and Erik Brynjolfsson (and others) have found, that “free” Facebook services are worth over $500 annually to each individual user in the U.S. and Europe.
Firms offer different levels of data privacy. Apple says that “privacy is a fundamental human right… and one of our core values.” With its devices and application software, sold at a hefty premium, Apple dramatically restricts advertiser access. Interestingly, the recent crash in Facebook share prices is likely due in large part to Apple App Store data restrictions and the emerging rivalry from TikTok. Competitive attacks are incoming from multiple directions.
The case against Facebook would be falling apart had it been stitched together to begin with. One danger now is that other antitrust actions—like the private case filed against Apple, contesting its allegedly anticompetitive control of the App Store—will scorch the very market trends delivering benefits for customers. (Apple won most of that case at trial; an appeal is pending). Zuckerberg has no chance to acquire Apple. But it would be his good fortune to have antitrust law disrupt Apple’s privacy protections for him.
Guest commentaries like this one are written by authors outside the Barron’s and MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit commentary proposals and other feedback to ideas@barrons.com.
