The Antitrust Case Against Facebook Is Bad Economic Policy

The Federal Trade Commission and 47 states are suing Facebook for allegedly squelching competition by acquiring startups, and seeking divestiture of Instagram and WhatsApp. The suits are without merit and bad economic policy.

Facebook (FB) offers users a tool to create online bulletin boards where individuals, affinity groups and businesses can communicate personal news, collaborate, market products and generally network.

Photo by William Iven on Unsplash

Network effects

It is great for organizing family gatherings and class reunions and has evolved into the dominant bulletin board platform because of the network effect.

Like the telephone system, the value of most social media services grows with the number of active users on the same platform. Unlike cellphone services, social media apps generally lack interoperability—the ability to send a message from Facebook to Twitter.

Membership is free—Facebook can’t harm consumers by raising prices as is usually understood in antitrust law. Its business model is driven by online ad sales, where its 23% market share trailsOnline ad rates have fallen 40% since 2010.

In the broader social media, messaging and moderation space, Facebook has plenty of competition—Snap (SNAP), Slack (WORK), LinkedIn (LNKD), Reddit, Discord and TikTok. The latter grew to 800 million users in just four years.

Data mining

The most fundamental problems with Facebook and Google (GOOGL), which faces a Justice Department and two state suits, Apple (AAPL), which is fending off a class-action suit, and Twitter (TWTR), which recently was fined by the European Union, are how they may mine and use personal data and treat businesses who sell products and advertise on their platforms.

Amazon (AMZN), for example, is notorious for harvesting data about businesses, which often must sell on its platform to survive, and creating competing products. It coaxes small firms into acquisition talks, only to obtain their proprietary information and mount strategies to drive them out of business.

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Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published columnist. He is the five time winner of the MarketWatch best forecaster ...

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