3 holes in the antitrust cases against Facebook

By Mark Jamison

Wednesday was a tough day for 46 state attorneys general and the Federal Trade Commission (FTC), who had filed antitrust lawsuits against Facebook in December 2020. On Wednesday, they got their first taste of Facebook’s rebuttal in the form of motions to dismiss the cases (here and here). It’s not looking good for the government’s antitrust enforcers.

Silhouettes of laptop users are seen next to a screen projection of Facebook logo in this picture illustration taken March 28, 2018. REUTERS/Dado Ruvic/Illustration
via Reuters

Such motions are generally short on details, and these are no
exception. Facebook probably knows the chances of the motions succeeding are
small, but it points out some of the holes that Facebook sees in the antitrust
enforcers’ cases. Here are three I agree with.

The states and FTC misidentify the market

The states and FTC argue that “The provision of personal social
networking services . . . in the United States is a relevant market.” They then
assert that other forms of online communications such as LinkedIn, YouTube, and
WhatsApp are inadequate substitutes for Facebook’s allowing people to maintain
social relationships and share experiences. Facebook counters that advertising
is the most relevant market because almost all Facebook revenue is from
advertising.

Defining “market” is crucial in antitrust because the enforcers
must demonstrate that Facebook has market power. This term is meaningless
unless prosecutors can define the market or markets at issue.

Choosing personal social networking as the market was a strategic
mistake. Facebook is right that, at best, personal social networking is a
market for inputs — namely, users’ time and attention — that Facebook uses for
advertising services. If Facebook demonstrates advertising is competitive, then
it naturally follows that the “time and attention” market is also competitive
or is not a market at all because there are great substitutes.

It also appears that the prosecutors may gut their own argument.
When defining the market, they exclude messaging services such as WhatsApp,
arguing they do not compete with Facebook’s main service. But elsewhere they
argue that Facebook’s acquisition of WhatsApp removed a competitive threat.
Either messaging competes with Facebook’s core service or it does not.

The enforcers don’t show that Facebook has
market power

The FTC argues that Facebook has market power because it has a
market share in personal social networking of more than 60 percent. (The states
seem to assume Facebook has market power without offering evidence.) Facebook
counters that the 60 percent claim is insufficient to demonstrate power.

Facebook’s argument is correct that the market share argument is, at best, weak. According to Statista, the average American uses social media for about 123 minutes per day. According to Social Media Today, the average Facebook user is on Facebook about 10 minutes per day, or only 8 percent of the time Americans spend on social media daily.

Statista doesn’t define social media carefully, so the 123 minutes
might include YouTube, which the enforcers do not include. But the 123 minutes
do incorporate all of the people who report zero social media use. There is an
indicator that the 8 percent might be right: Social Media Today reports that
TikTok users are on that service 52 minutes a day, more than five times the
time spent by the average Facebook user.

Further weakening the enforcers’ power argument is the states’
admission that Facebook earned its customers by providing a superior service.
Superior service should be rewarded, not prosecuted.

The enforcers don’t demonstrate consumer harm

US antitrust doctrine is concerned with protecting consumers and
should remain as such. Facebook correctly points out that the enforcers don’t
demonstrate that consumers have been harmed.

The FTC claims only that Facebook harms competition, not
consumers. It doesn’t define competition, but it implies that this means
Facebook doesn’t compete on merits and is unfair to rivals. But the states
argue that Facebook achieved its status because of its merits, and no one shows
that Facebook’s service has declined.

The states claim consumer harm, but they never explain it beyond
saying that if there were more rivals, they might have introduced innovations
and investments that Facebook did not. It is certainly true that Facebook’s
rivals behave differently from the company; that is to be expected when one
company has so much success. But most differences that rivals would introduce
would not benefit consumers. That is one reason why the vast majority of
startups fail.

What’s the bottom line?

It’s possible that the enforcers and Facebook have not yet revealed
their best arguments. So this could all turn against Facebook. But so far, it
looks like the enforcers are struggling to make their cases.