Earlier this December, the Federal Trade Commission and 48 state attorneys general launched an antitrust suit against Facebook over its acquisitions of Instagram and WhatsApp in 2012 and 2014, respectively. In doing so, they risk expanding antitrust enforcement into unprecedented areas.
The core of the case is the allegation that Facebook’s acquisitions negatively impacted competition and harmed consumers. But should it prove successful, this suit would have a far more harmful effect on innovation and consumer benefits than anything Facebook could do.
For starters, it’s worth understanding the nature of the market in which Facebook operates. Social media companies are often misunderstood to be competing against other social media companies alone, or even more narrowly, against other social media platforms with a near-exact model (such as Facebook competing with Myspace, or Twitter competing with Parler).
This isn’t the case. Social media companies’ primary source of revenue is advertising, and their platform is only so valuable to advertisers as the number of views it can provide. Social media platforms therefore compete with anything that may draw your attention elsewhere — be it other social media, news outlets or Netflix.
More importantly, social media is not essential. Facebook doesn’t just have to worry about a competitor with a similar platform coming in and taking over its market, it also has to prevent people from deciding they don’t need to use Facebook, or anything like it. It has to offer people something that benefits them to use.
In this context, it seems absurd to paint Facebook’s acquisitions of start-ups which had 13 and 55 employees at the time that Facebook acquired them as harming consumers. Instagram has grown from another photo-sharing app to a massive platform. WhatsApp went from being subscription-based to free, and has allowed people to bypass the previously prohibitive cost of texting overseas.
Was Facebook’s primary motivation to forestall its being replaced by a competitor’s version of Facebook? Perhaps, but antitrust enforcement should only come into play if there stands to be significant harm to consumers in the form of a constrained market. It’s nearly impossible to argue with a straight face that a platform which charges nothing at all for the use of its platform and competes with a broad range of other types of companies is a monopoly that has harmed consumers.
The FTC recognized this when it ruled in support of Facebook’s acquisitions of both Instagram and WhatsApp in the first place. The FTC’s antitrust powers should not come into play unless a business successfully insulates itself from competition and consumer feedback to the point where it is actively harming consumers. That’s far from the case with Facebook.
And antitrust action against Facebook is worse than simply being unmerited. It would also constrict innovation by warning businesses that any acquisitions they make, even if already FTC-approved, could be stripped away should they become successful enough. The aforementioned growth to Instagram and WhatsApp occurred only after substantial investment from Facebook — businesses in the future may prove wary of growing acquired brands too much, lest they be stripped away.
The federal government’s antitrust tools represent a government intrusion into the market that should only be undertaken in the case of a clear consumer harm from a lack of market competition. Should the FTC’s case against Facebook move forward, it would shift this measured philosophy to one that could be summed up as “break up anything that gets too successful.” In a country that thrives because of the successes of innovators, choosing the chainsaw in favor of the scalpel would be an unfortunate change in approach.
Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.