Facebook: The Changing Tides of Antitrust Regulation

One of the most ubiquitous components of life in the twenty-first century has been Facebook. The most widely used social network in the world, it is also the anchor of a global conglomerate of widely used social media and messaging platforms such as Instagram and WhatsApp. In conjunction with recent tendencies toward firm consolidation in the corporate world, consumers have been worried that Facebook controls an overwhelming portion of its market. These concerns became more pronounced in July 2019, when a day-long service outage caused technical issues across Facebook’s subsidiaries. Given the flagship network’s 36.64% share of all social media accounts, many means of social interaction taken for granted by consumers were significantly hampered. [1]

In response to the potential consequences posed by another such outage, the Department of Justice has opened an antitrust investigation into Facebook. Specifically, the report is intended to review “whether and how market-leading online platforms have achieved market power and are engaging in practices that have reduced competition, stifled innovations, or otherwise harmed consumers.” As stated by Assistant Attorney General Makan Delrahim of the Antitrust Division, one potential consequence of illegal methods of consolidating market power is that “digital platforms may act in ways that are not responsive to consumer demands”. For example, despite public outcry over data privacy management during Facebook’s Cambridge Analytica scandal, the company’s share price, in fact, rose after the scandal. [2] Given that a subsequent downward correction was due to lower earnings expectations after its earnings call, it is clear that from a market-based perspective, Facebook’s valuation is held accountable to its projected ability to consolidate more of the social media market, not consumer demands. 

Given Facebook’s apparent immunity to the detrimental effects of scandals that would significantly impact companies in less heterogeneous markets, it therefore is no surprise that the government is investigating whether Facebook has engaged in illegal methods of consolidating market power. [3] Should the government find fault in Facebook’s actions, one potential option is to force Facebook to spin off its subsidiaries by acting through the courts. 

However, recent antitrust litigation merits an examination of the realized the effectiveness of this option; in recent years, the government has effectively failed to regulate corporate consolidation. A particularly notable example was the government’s unsuccessful attempt to prevent the merger of AT&T and Time Warner. An examination of the court’s ruling in this case reveals that modern interpretations of antitrust law would likely result in a similar decision in the defendant’s benefit. 

In U.S.A vs. AT&T Inc., et al. (2019), the majority opinion given by Circuit Judge Rodgers was that the government had failed to demonstrate how prices would increase using “prior vertical mergers in the industry”. Furthermore, the court found the defendant’s argument that the market was more competitive than it seemed, given the presence of streaming companies such as Netflix and Hulu. 

Critically, the legal principle for determining whether a merger should be prohibited rests on proving that the merger or acquisition in question “substantially” lessens competition. However, what actually constitutes a substantial lessening of competition is left undefined, leaving the courts to interpret the “substantial” condition. In this case in particular, the court was also tasked with deciding between a cost-based and price-based notion of lessened competition. While the government argued that Turner Broadcasting’s bargaining leverage would be increased by allowing the company greater room to absorb the costs of service blackouts in comparison to its competitors, AT&T argued that econometric analysis of the potential effects of the mergers showed that prices would not significantly increase. 

Under consideration of Turner Broadcasting’s irrevocable offer of arbitration agreements with a no-blackout guarantee, the court decided in favor of AT&T. As a result, the price-based argument utilized by the defendant is affirmed to be a valid defense of a merger. It should be noted that the opinion also states that “the court does not hold that quantitative evidence of price increase is required in order to prevail on a Section 7 challenge.” However, qualitative arguments would seem to lend themselves to greater vulnerability to companies seeking mergers. [4]

In Facebook’s case, we can begin to see that the ambiguity over what constitutes a “sufficient” lessening of competition and furthermore, how the way in which such a lessening should be measured augments the burden of proof for the government. The AT&T and Time Warner ruling also seems particularly effective in the hands of a company such as Facebook, which does not charge users upfront for services. As a result, Facebook’s increased portion of the market is not resulted in price increases but in ways that are not outlined by current antitrust legislature. Facebook could therefore argue that continued consolidation of the market helps to increase accessibility to its app. Finally, whereas companies such as AT&T are in long-established industries where there is a relatively greater amount of both legal precedent and case studies to examine, the same cannot be said of younger companies such as Facebook, where the government moves into unknown territory with outdated tools. 

[1] Kallas, Priit. “Top 10 Social Networking Sites by Market Share Statistics”. Dreamgrow. July 3, 2019. https://www.dreamgrow.com/top-10-social-networking-sites-market-share-of-visits/

[2] “Facebook Inc - Company Profile”. Bloomberg. https://www.bloomberg.com/profile/company/FB:US

[3]  “Justice Department Reviewing the Practices of Market-Leading Online Platforms”. Department of Justice. July 23, 2019. https://www.justice.gov/opa/pr/justice-department-reviewing-practices-market-leading-online-platforms

[4] AT&T Time Warner., et al., D.C. Circ., (2019) https://www.cadc.uscourts.gov/internet/opinions.nsf/390E66D6D58F426B852583AD00546ED6/$file/18-5214.pdf

http://euro.ecom.cmu.edu/program/law/08-732/Antitrust/ClaytonAct.pdf