Background: Since its creation in 2004, Facebook has become the premier social media networking site with an estimated 200 million users in the United States. As it has grown, antitrust enforcers at the Federal Trade Commission (FTC) and Department of Justice’s Antitrust Division have turned their attention to reigning in the company’s potential influence.
In December 2020, the FTC filed an antitrust suit against the tech giant, alleging that Facebook had engaged in anticompetitive behavior and acquired Instagram and WhatsApp to suppress competitive threats. The case was ultimately thrown by a federal judge who claimed the FTC’s case was “undoubtedly light on specific factual allegations” and failed to outline “the key question of how much power Facebook may have.” However, the judge gave the FTC the ability to re-file its case against Facebook, and it did on August 19, 2021.
What at the FTC alleging?
- According to the FTC, rather than face competitive threats, Facebook engaged “in an illegal buy-or-bury scheme to maintain its dominance.” These practices included its acquisition of Instagram in 2012 for $1 billion and WhatsApp in 2014 for $16 billion.
- Facebook “lured app developers to the platform, surveilled them for signs of success, and then buried them when they became competitive threats.”
- Facebook “unlawfully acquired innovative competitors with popular mobile features that succeeded where Facebook’s own offerings fell flat or fell apart.”
What Does the FTC Want to Happen?
- Structurally separate Facebook from Instagram and WhatsApp, and other acquisitions that allegedly harmed competition.
- Ban anticompetitive agreements imposed on app developers.
- Facebook to submit regular compliance reports to the FTC.
What Does This Mean for Consumers?
In their present form, social media companies like Facebook provide significant welfare for consumers. For example, Facebook connects over 200 million Americans to their family and friends at no cost. The company also offers various other features such as an online marketplace, messenger service, games, and integration with smartphones. The company can offer these services to consumers at no cost because of the significant advertising revenue, estimated at $84 billion in 2020.
If Facebooks’ business model were disrupted by the FTC’s request for structural separation, consumers would undoubtedly lose access to these free features as they shift toward a two-tiered system where Facebook’s basic features remain free, but other features need to be paid for by consumers. A shift toward payments for use would disproportionately harm low-income Americans and turn Facebook’s services into the purview of the middle and upper classes.
Best Case Scenario for Consumers?
The best outcome for consumers is that federal courts once again dismiss the FTC’s case against consumers and Facebook is allowed to continue generating substantial consumer benefits.