The Economic Standard: Facebook is Back in Court

In December 2020, the FTC filed an antitrust suit against the tech giant, alleging that Facebook had engaged in anti-competitive behavior and acquired Instagram and WhatsApp to suppress competitive threats. The FTC’s original case against Facebook coincided with a similar antitrust suit from 48 attorney’s general seeking to have the tech giant broken up for allegedly stifling competition “to protect its monopoly power.”

The FTC’s case was ultimately dismissed by a federal judge who stated the FTC’s arguments were “undoubtedly light on specific factual allegations” and failed to outline “the key question of how much power Facebook” had. However, the judge gave the FTC the ability to refile its case against Facebook, which happened on August 19, 2021. The state’s case was also thrown out on the grounds they waited too long to file their case.

In their new filing, the FTC has alleged “Facebook… resorted to an illegal buy-or-bury scheme to maintain its dominance.” This allegation centers around Facebook’s $1 billion purchase of Instagram in 2012 and the company’s $16 billion purchase of WhatsApp in 2014. The FTC’s complaint specifically argues that Facebook “lured app developers to the platform, surveilled them for signs of success, and then buried them when they became competitive threats.” Finally, the FTC’s amended complaint argues that Facebook “unlawfully acquired innovative competitors with popular mobile features that succeeded where Facebook’s own offerings fell flat or fell apart.”

As part of their lawsuit, the FTC seeks to separate Facebook from its acquisitions of WhatsApp, Instagram, and any other anti-competitive mergers. Additionally, the FTC is also requesting Facebook be prohibited from any future acquisitions and engaging in agreements deemed to be anti-competitive to app developers who depend on access to Facebook’s platform.

Arguably the biggest failing in the FTC’s case against Facebook is their failure to consider the significant consumer benefits that resulted from the acquisitions. Not only does the company provide a social networking site to consumers, but it also offers a messaging service, gaming service, robust cybersecurity provisions, a secure payment system, and video chat features. All of these services are made available to consumers free of charge.

These free services that generate substantial consumer welfare are only made available to consumers because of the significant advertising revenue Facebook is able to generate, estimated to be around $85 billion in 2020.

The other notable failing of the FTC’s suit against Facebook is how it deprioritizes consumer welfare in favor of a “big is bad” mentality. Nowhere in the lawsuit does the FTC discuss how Facebook’s alleged practices have harmed consumer welfare. This omittance is particularly concerning because the FTC’s stated goal is to prevent practices that are “deceptive to unfair to consumers.” Omitting consideration of consumer welfare suggests the FTC now interpret antitrust statutes as designed to protect private enterprise, not consumers.

For consumers, the FTC’s suit against Facebook could have far-reaching consequences. Disrupting how Facebook operates and generates consumer benefits will undoubtedly force the company to adjust its business model. For example, rather than offering free services to consumers, Facebook could be forced into a two-tiered system with some services being available for free and others available for a fee or, the company could start charging for access. The suit could also prevent Facebook from providing future services and enhancing the welfare of those who use its services.

In both instances, consumers lose out.

Given FTC Chairwoman’s overt hostility to big tech, it is perhaps unsurprising that the agency has pursued another antitrust suit against Facebook. In doing so, however, the FTC is potentially jeopardizing consumer welfare in favor of a “big is bad” approach. As a result, consumers must hope that the federal courts once again reject the lawsuit and show the FTC that consumer welfare should be at the center of antitrust suits.

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