Making the antitrust case against Facebook, a new kind of monopoly

Taking a closer look at a behemoth.
Taking a closer look at a behemoth.
Image: Reuters
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New York’s attorney general, Letitia James, has announced the launch of a multi-state investigation into Facebook’s market dominance and “potential anticompetitive conduct stemming from that dominance.”

James is leading a bipartisan coalition of state attorneys general, including Colorado, Florida, Iowa, Nebraska, North Carolina, Ohio, Tennessee, and the District of Columbia. “We will use every investigative tool at our disposal to determine whether Facebook’s actions may have endangered consumer data, reduced the quality of consumers’ choices, or increased the price of advertising,” she said in a statement.

The notion that Facebook might be a monopoly, unlawfully using its market power, isn’t shocking. As Dina Srinivasan, author of a 2019 Berkeley Business Law Journal article about the antitrust case against Facebook, puts it, “Colloquially, and in the press, Facebook is a monopoly. Members of Congress, reporters, academics, and even initial founders of Facebook are speaking of Facebook’s monopoly power and questioning the need for regulation.”

Indeed, the Federal Trade Commission and the Justice Department have already been looking at how a few tech giants—Facebook, Google and Amazon, especially—quickly gathered and consolidated power in recent years, using their growing domination to quell competition. Massachusetts senator and Democratic presidential candidate Elizabeth Warren has often expressed the desire to break up technology companies that dominate the marketplace.

Last year, a coalition of left-leaning groups launched an ad campaign arguing for the break up of Facebook. Months earlier, United Nations investigators noted that in Myanmar, where anti-Rohingya sentiment has led to violence and ethnic cleansing—Facebook played a role in promoting hate because it is the main source of local information, essentially making up the internet there. “Social media is Facebook, and Facebook is social media,” Marzuki Darusman, chairman of the UN fact-finding mission explained.

So why haven’t regulators acted faster and why doesn’t James’ statement regarding the states’ investigation sound more certain of the antitrust case against Facebook? Because Facebook is a new kind of company and proving it’s a monopoly is difficult, under traditional antitrust law.

Not quite open and shut

Srinivasan argues that regulators and academics have struggled to even know how to think about an antitrust case against Facebook, because it offers a “free” service. Traditionally, there is direct and indirect evidence of monopoly power. For example, price hikes without competition could be direct evidence. And a company’s share of the industry could be indirect evidence. However, since Facebook has always been “free” to users, it cannot be argued that it has driven up prices and driven out competitors by dominating the marketplace. She explains:

In digital markets where consumers do not pay a price, antitrust enforcement must become comfortable with a paradigm that focuses on quality. Never before have we had to grapple with one of the most valuable companies in the world, a half trillion-dollar market cap company, that provides important communications services to over 2 billion consumers but charges no price.

Still, that doesn’t mean Facebook is immune to antitrust claims. As Srinivasan points out, shifts in quality of service, like price, are another indicator of a company’s monopoly power. Her paper lays out the ways that the social media platform began attracting users in 2004 by promising quality in the form of privacy protections that more popular platforms at the time, like MySpace, did not.

Facebook accumulated users and power by offering privacy protections but it wasn’t always straightforward about how it was collecting data or what it was using it for. It became adept at surveilling users with assistance from other websites and because it was so popular, few could resist.

Despite promises not to track users beyond Facebook or when they logged off, the company was able to do just that, partly with the help of other companies, like publishers, who were competing with the social media giant for advertising dollars but also putting Facebook plug-ins on their websites in order to promote their own content to the ever-growing Facebook audience. Those plug-ins allowed the social media platform to collect more and more data about individual users and to sell the value of having that information to advertisers.

By 2014, a decade after its launch, Facebook was the dominant platform and had few competitors (no more MySpace, Friendster, Mixi, Cyworld, hi5, BlackPlanet, Yahoo’s 360, AOL’s Bebo, or Google’s Orkut, say). At that point, more than a billion users were on Facebook and people didn’t feel they could leave or refuse to join given how much communication was happening there, nor could other companies avoid cooperating with the giant without risking becoming irrelevant. “For Facebook, these circumstances— the exit of competition and the lock-in of consumers—greenlit a change in conduct,” Srinivasan argues. From there, despite articulating concerns about privacy, the company was actually collecting and using consumer data for profit, sometimes dishonestly and against users’ will, and consolidating its monopoly power.

She believes that an antitrust case against Facebook can be made by showing its ability to extract surveillance in its interactions with consumers and likens this to the extraction of monopoly rents in more traditional antitrust situations. By luring consumers with a promise of privacy—its alleged service quality—that it did not keep but wasn’t clear about, Facebook’s power grew. As it gained more users, it defeated competitors and locked down the market, offering lower and lower quality as it dominated.

Don’t hate Facebook for its strength?

The fact that Facebook has a lot of users and few competitors is not, in and of itself, problematic from an antitrust perspective. What may be problematic, however, is the way it achieved that dominance.

“You could defend your market position just by offering consumers better value, offering a better service,” Martin Gaynor, professor of economics and former chief economist at the Federal Trade Commission, told Quartz in an interview about tech monopolies. “But if you’re doing things that put competitors at a disadvantage, if you’re making it difficult to impossible for new firms to enter and get it into the market, if you’re snapping up potential competitors before they can actually get into the market and compete with you, things like that are potentially causes for concern.”

Because Facebook, in addition to perhaps deceiving users with a false promise of privacy, is also famous for snatching up potential competitors, like WhatsApp and Instagram, and trying to acquire others, like Snapchat and the video chat app Houseparty, its current market dominance is suspicious.

Investigators have a lot of work ahead of them, and Facebook has a lot of money and power to throw around if, ultimately, it is charged with antitrust violations by the state attorneys general. But there is certainly a strong argument that it’s a monopoly and that its dominance isn’t based purely on honestly offering a great free service while engaging in healthy competition.