Are Facebook and Google an Antitrust Problem?

-- By LizzethMerchan - 23 Apr 2018

The Problem

Facebook and Google are among the world’s largest companies by market capitalization. For many, Facebook and Google now define the experience of the internet. Recently, however, these tech giants have been subject to increased scrutiny by the media, politicians, and the general public. Throughout the 2016 election, social networks were plagued by fake-news stories, conspiracy theories, and other forms of propaganda. Although not the first campaign to be tainted by misinformation, the Trump campaign’s hijacking of social networks was notable. Following the election, Facebook and Google were heavily criticized for failing to curb the proliferation of “fake news” and misinformation on their platforms. The Cambridge Analytica scandal, one of many data breaches in recent years, has instilled a sense of distrust in the general public, prompting Facebook users to question their use of the social platform.

The “fake news” epidemic and data privacy scandals, among other issues, have led to demands for increased regulation of Facebook, Google, etc. In the last five years, the “big four” tech giants in the U.S. – Google, Amazon, Apple, and Facebook - have been subject to the European Union’s antirust laws. In 2017, Google was hit by a giant $2.7 billion fine by the EU Commission for abuse of their dominant position in the comparison shopping market. Facebook is currently under investigation by the German competition authorities on their data practices. The sheer size, diversity, and potency of these companies calls for increased government regulation and oversight. Some are calling for the U.S. to follow in the EU’s footsteps. Are American antitrust laws an appropriate and effective mechanism through which to regulate these companies?

The Law

Antitrust 101 tells us that competition between companies is good for consumers and for the overall economy. Antitrust laws exist in order to prevent monopolization, which occurs when a company so dominates a market that it effectively eliminates the possibility of competition. Per Section 2 of the Shearman Act, monopolization “(1) monopoly power and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” The analysis, then, is two-fold: 1) Do Facebook and Google have “monopoly power” in any market? And if so, 2) how was this power initially achieved and subsequently maintained?

A Solution?

It is undeniable that Facebook and Google are big and powerful. The Supreme Court has defined monopoly power as “the power to control prices or exclude competition.” The possession of monopoly power requires a dominant market share. Google currently has a 92% share of the Internet Search market, which is worth about $92.4 billion worldwide. Four of the top five apps globally – Facebook, Instagram, WhatsApp? , and Messenger - are all owned by Facebook. Together, Facebook and Google control over 70% of online advertising. These statistics alone support the conclusion that Facebook and Google have monopoly power.

Possessing monopoly power, however, is not per se illegal. It is illegal to try to acquire or maintain monopoly power in a way that excludes or hinders competitors. For example, developing a superior product or simply being the first to do something are legal and legitimate ways of achieving market dominance. Google came up with, arguably, the best search engine on the market. Before Facebook, there was Myspace. A social network initially intended for college students, Facebook eventually knocked out Myspace as a competitor and grew to become the world’s most popular social network. Given that Facebook and Google initially acquired their monopoly power in compliance with antitrust laws, do they fail to meet the monopolization threshold laid out in the Sherman Act? What have these companies done to maintain their monopoly power?

Traditionally, antitrust law serves to protect lower prices, consumer choice, and innovation. As Facebook and Google work to maintain their monopoly power, do they raise prices, lower output, or harm innovation? Most of the products or services these companies make available to consumers are free or priced at a very competitive level. But in exchange for these “free” services, users “pay” for them by giving away massive amounts of personal data. Consumers aren’t paying higher prices to use these platforms, but in exchange, as a society, we are allowing Facebook and google to disproportionately influence the news and dissemination of information. This is a significant tradeoff. Antitrust law’s definition of consumer harm revolves around pricing, but for these big tech giants, the harm should be redefined to capture the harm inflicted on consumers and democracy in general.

In terms of consumer choice, although Facebook and Google attempted to compete in their early days, today they are anticompetitive. Google’s abuse of its dominant position in the search engine market was made clear in the EU Commission’s investigation of its comparison shopping services. Google implemented a strategy to increase its search-ad revenue by encouraging merchants to raise prices to consumers. The investigation’s findings strongly support the conclusion that Google’s conduct not only is anticompetitive, but also harmful to consumers by 1) manipulating prices and 2) compromising consumer choice.

As it is currently interpreted and applied, U.S. antitrust law does not appear to be an effective mechanism through which to regulate big tech companies like Facebook and Google. However, the basic elements of monopolization as defined in Section 2 of the Sherman Act could be interpreted and applied to accommodate the kind of behavior and harm expounded by big tech giants like Facebook and Google. Existing U.S. antitrust law needs to be updated to reflect the modern and evolving nature of giant tech platforms. A potential remedy may be to prevent these companies from getting any bigger by scrutinizing mergers and acquisitions to a more stringent degree. U.S. antitrust law could also place the burden on the tech giants to demonstrate that they are not hurting competition or democracy. Technology is evolving and competition laws should address this ongoing evolution.

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