The Facebook Antitrust Case Is Aging Poorly

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Antitrust cases often take years to litigate. While wasteful, this isn’t always a bad thing. The politics surrounding a case might stay the same, but markets change. This is happening right now with the antitrust case against Facebook (now Meta). The lengthy delays in the case have allowed enough time for everyone to see that competition is alive and well among social networks.

A quickly settled case would have risked keeping the market as it was at the time by locking in certain content, advertising, and privacy regulations that would likely be part of a settlement. That would freeze out new competitors and new ideas.

Regulatory capture is baked into antitrust. An antitrust settlement could unintentionally lock in Facebook’s dominance for good, while giving consumers a product that doesn’t get any better over time.

Even without new antitrust verdicts or regulations, competitors are already eroding Facebook’s dominance, which looked beyond challenge just a couple years ago. The company is scrambling to adapt—which itself is evidence of a viable competitive market. Just today, Facebook parent company Meta reported its first-ever quarterly drop in revenue. It will still report a profit, though it is also expected to report its second-ever decline in daily users.

This closely follows Facebook announcing a major change in its newsfeed to make it more closely resemble its hipper competitor TikTok.

Facebook previously reported its first-ever decline in daily users in late 2021, though it had since rebounded, possibly until now.

In short, market conditions are changing rapidly, as they always do. Facebook’s users are getting older and less cool every year, and their kids prefer competitors like TikTok. Facebook is at risk of being a one-generation phenomenon, like pet rocks or beanie babies. Antitrust enforcement has nothing to do with this, and market competition does.

The low quality, strident tone, and misinformation in many political posts on Facebook irritates many users. Fairly or not, many people believe Facebook is plays a role in increasing social polarization, and this perception is driving more people away than it sucks in. Then there are Facebook’s repeated stumbles on protecting privacy.

Meta knows these are existential threats. It is reacting to them in a variety of ways, from its upcoming emphasis on the metaverse to changing the types of content it shows users. Facebook cannot force people to use its products. It cannot stop competitors from entering its market. And it cannot stop users from using those competitors instead of Facebook, or in addition to it. Facebook has to give people a good product they value, or it will join its predecessor MySpace as a part of Internet’s past.

If Facebook successfully adapts, users will get a better product, and the company will remain profitable. If it doesn’t, competitors will fill the void in new and better ways. Either way, consumers win.

Contrast this market dynamism with the Federal Trade Commission’s (FTC) antitrust case, the first version of which was filed back in the Trump era. The agency had already been investigating Facebook for more than a year, and was slowly assembling its case. But then-President Trump insisted that big trust-busting cases be part of his legacy, so he had the agency put out a rushed version of the complaint in December 2020, despite staff objections that the case wasn’t ready.

Several months later, a court agreed with the FTC staffers and dismissed the complaint for being poorly argued and not defining key terms. For example, the FTC’s allegation that Facebook is a monopoly relies on a language game. Facebook’s relevant market, termed “personal social network services,” is defined in just such a way that excludes Twitter, TikTok, and other competitors.

When you define a market narrowly enough, anything can be a monopoly. This is the relevant market fallacy, and the court called out the FTC for committing it.

But the court gave the FTC a chance at a redo, and the FTC submitted a revised complaint in August 2021—when Facebook was experiencing its first loss in daily users. The market was already changing, but the new complaint mostly stayed the same. It kept the same relevant market definition that got the first version dismissed, but this time the court let it proceed. Facebook’s antitrust case has now gone on for more than a year and a half, and the revised complaint is nearly a year old. A trial date has still not been set.

The Facebook case is already starting to resemble an IBM antitrust case concerning mainframe computers that began in 1969. The case dragged on for 13 years, by which time personal computers were making mainframes extinct. The Justice Department dropped the case, which it was clearly going to eventually lose because the market was competitive all along.

The 1990s Microsoft case also shared this story arc. Even before the case was settled, Microsoft’s Internet Explorer was losing its dominance to Netscape Navigator, then a succession of other browsers, despite being bundled with Windows.

The good part about these precedents is that, like social networking, IBM’s and Microsoft’s markets were competitive all along, and changing rapidly. The bad part is the wasted time and resources that went to lawyers, courts, and lobbying that could have gone toward developing better products instead.

The way things are going, the FTC’s Facebook antitrust case is unlikely to prevail in court. The longer it drags on, the more the market will change, and the weaker the FTC’s case will become. Maybe Facebook will remain on top a decade from now, and maybe it won’t. It all depends on how consumers take to what Facebook offers in the future. Either way, the antitrust case was never needed in the first place, and is already aging poorly.

For more, see Jessica Melugin’s study on antitrust’s greatest misses, and Wayne Crews’s and my paper, “The Case against Antitrust Law.”