Reckoning with the Size, Scope And Power of Social Media Giants
Bob Fay, managing director of digital economy research and policy at the Centre for International Governance, discusses the Federal Trade Commission’s pending antitrust lawsuit against Facebook, as well as broader issues around data privacy, competition and regulation in the digital age. CCBJ: Please explain the background and potential effects of Facebook’s purchase of Instagram and WhatsApp. The Federal Trade Commission (FTC), for instance, has brought an antitrust lawsuit against the social media giant, claiming that it has harmed competition by buying up these smaller companies. Bob Fay: Last summer, the Committee on the Judiciary released a very comprehensive report on the state of online competition. It brought out a number of very
The real power of Facebook today comes from its treasure trove of data and its control over it. billions of dollars in cash that they have amassed through their economies of scale, scope, network externalities and first-mover advantage. And they can use this cash like a venture capital fund: to take out the competition. In fact, one arm of their operations is essentially a venture capital fund. We know about the public takeovers such as WhatsApp and Instagram. What we know much less about are the takeovers of small innovative private firms that might have had the potential to bring substantial competition: those companies that enter the kill zone. These takeovers could have serious implications for innovation, welfare and consumer choice.
important points, focusing on the role of digital platforms as gatekeepers (Google for search, Apple for apps, Amazon as a sales platform, Facebook for social media) and their ability
What has this lack of competition meant for consumers?
to control markets. It also discussed broader issues including
The FTC alleges that “this course of conduct harms
for a free and diverse press, innovation and privacy.
competition, leaves consumers with few choices for personal social networking, and deprives advertisers
The FTC’s lawsuit is much narrower than these issues:
of the benefits of competition.”
It alleges that Facebook’s purchases of Instagram and WhatsApp have essentially led to less competition in the
What does that actually mean?
marketplace than would otherwise have been the case. Instead of competing, Facebook chose to purchase these emerging
A very concrete example is in Germany, which is also
threats. In other words, instead of innovating and competing,
currently suing Facebook. The lawsuit essentially says that
it chose an action that ultimately leads to less innovation
according to the service/consent agreement consumers
overall and has negative implications for consumer welfare.
are forced to allow Facebook to combine their data from its various platforms, and if a consumer refuses this consent,
The takeovers raise the very important issue of “kill
they do not have access to any of the platforms – i.e., it is all
zones.” Social media platforms like Facebook sit on
or nothing. What appears to be a choice is no choice at all. CORPORATE COUNSEL BUSINESS JOURNAL
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