Facebook filed today to dismiss antitrust lawsuits against it today by the Federal Trade Commission (FTC) and several state attorneys general. One of the reasons they should be dismissed is that both cases rely on a textbook example of defining a company’s relevant market artificially narrowly in order to make the company look more dominant than it is.
In its Facebook complaint, the FTC argues that Facebook dominates the market for “personal social networking services.” The states’ case uses the same term. They made it up just for this case. Its specialized definition omits competitors such as TikTok and Twitter. It also omits emerging competitors such as Discord and Clubhouse, and more like them that are sprouting up all over the Internet, a point that will only grow more important as the Facebook case proceeds.
Of course Facebook dominates a market definition that intentionally leaves out most of the competition! Arguments this weak have no place in a courtroom. Any of these competitors could take away Facebook’s market share the same way Facebook supplanted MySpace.
Even this is not the full extent of Facebook’s relevant market. Facebook competes for consumers’ attention against other uses of people’s leisure time, such as Netflix, podcasts, and even in-person socializing. As more people get vaccinated, restaurants, sporting events, movie theaters, and other activities will resume competing against Facebook for peoples’ attention.
Facebook also competes in the advertising market. A common test for market power is whether a company can jack up prices while restricting supply. Facebook does not have market power in the advertising market. Digital ad prices went down by half between 2009 and 2019. Over that same period, print ad prices doubled. In fact, the antitrust complaints argue that Facebook executives worried in internal correspondence that Instagram and WhatsApp would drive down ad prices even farther or faster. Due to the evidence they provide in their own complaints, the FTC and the states will have a difficult time arguing that Facebook had the market power to raise ad prices. In soccer, this is called an own-goal.
Apple and Google, for example, are Facebook’s largest competitors in the ad market. They are both in the process of changing their privacy policies to differentiate themselves from Facebook’s approach, in the hope of luring consumers and ad buyers away from Facebook. Meanwhile, other websites and apps, as well as real-life entertainment options, will never stop competing with Facebook for consumer attention.
In a competitive market like this, Facebook does not have the power to control its fate—consumers do. Facebook and its competitors are engaged in an ongoing discovery process to see what appeals to their customers.
The market process resembles a moving picture that is constantly changing and evolving. Antitrust cases are more like still images of a single frame. A decade ago, critics complained that MySpace was a natural monopoly that could drive out all competition. Now people are making similar arguments against one of those competitors, Facebook. A decade from now, Facebook might still be the largest social network company. Or it might not. Either way, it will not be the same product it is today. It must either continue to adapt its privacy, content moderation, and newsfeed algorithms in ways that people like, or it will lose its dominance. If it stays on top, it is because people like its product. Either way, consumers are in charge. To claim otherwise is unrealistic.
Whether it’s in “personal social networking services,” or an arbitrarily narrow definition of the advertising market, Facebook does not have monopoly power. Nor is there proof of consumer harm. One reason Facebook’s user services are free is because users would flee to other free sites if Facebook were to begin charging them.
Facebook is also unable to stop ad prices from declining. With the ad market essentially on a permanent 50 percent off sale compared to when Facebook became big, the company clearly does not have the ability to set a floor on ad prices. Even if it were to try, prices would continue to fall through their floor because of the competitiveness of the market.
The FTC and the states are unlikely to win on the merits, so they are instead turning to semantic arguments. The FTC and the states should drop their cases. If they don’t, courts should dismiss them.
For more, see a statement from CEI experts, my earlier blog post, Iain Murray’s Fortune article, Wayne Crews’s and my paper “The Case against Antitrust Law,” and CEI’s dedicated antitrust website, antitrust.cei.org.
Inertia Wins! 